Why Microsoft Should be Shaking in its Boots
Wednesday, April 16, 2008 | Wayne Mulligan
A TickerHound member asked:
I've been following this situation since Google made the announcement, and I personally think this was Google's big "power play". It was the move that Microsoft was worried about for the last four years - here's why...
When I first heard about Steve Ballmer throwing a chair across a room and screaming (in his typically high-pitched voice) about how he was going to kill Google (all because an employee was leaving), I was perplexed. Why on earth would Microsoft - the king of the desktop - be so scared of a search company?
I couldn't see it... it was my own fault for not seeing it, but I just couldn't comprehend what Microsoft saw in Google. All this company did at the time was search through web sites and serve up emails. Where's the competition?
But over the last few years, it's become painfully clear what Microsoft was scared of all along. I'm impressed that they even had the foresight to see it coming - however, I'm pretty disappointed that they've done nothing to stop it. Microsoft saw that Google was trying to become to the web what Microsoft was to the desktop PC.
Let me explain...
In the early days of the personal computer revolution, one of the biggest and most innovative players in the space was Apple Computer. The Macintosh could be found in offices, schools and homes - the company had a real shot at dominating this market. But out of nowhere that all changed. Within a short period of time there were a myriad of hardware makers producing and shipping PC's all over the world. And the company that made it all possible was none other than Microsoft.
Microsoft did this by building Windows - the first WYSIWYG (What You See Is What You Get) operating system that was NOT "married" to any specific type of hardware (unlike Apple which only let you run Apple operating systems on Apple hardware). By creating an operating system that ran on virtually any machine, Microsoft accomplished two things:
- They opened up a huge market for hardware makers
- They opened up a huge market for software makers.
After Windows came to be, independent software vendors could build applications that would work on virtually any hardware platform. This spurred a massive amount of innovation from independent software vendors, which not only helped the other hardware and software companies, but it also helped Microsoft too.
Think about it: if all of the software you use on a day-to-day basis could only run on a Windows machine, then you'd be hard pressed to switch to an Apple, right? And that's exactly what allowed Microsoft to "win" - they created a positive virtuous cycle:
- If Windows was on more PC's
- then the greater the likelihood software vendors would build their software to run on Windows
- which meant that more hardware manufacturers would have to support windows
Now let's talk about who is going to power the "operating system" of the web.
Powering a simple web site is good and all, and it's easy enough to do. But in order to maintain a world class web operation, it still requires a certain level of sophistication, time, and money. Google recognized this and took a page from Microsoft's playbook.
Yesterday, at its second annual "Camp Fire" event, Google announced its latest service: Google App Engine.
This service will allow web sites to be hosted right on Google's servers. Google will provide all of the backend technology - which is usually reserved for the well funded and experienced web sites - such as storage, database management and clustering, failover protection, auto scaling, etc. Basically, anything and everything a world class web application would ever need, Google now provides.
The best way to think of it is by picturing a young athlete who wants to become a world class runner - should he have to build the track and make his own running shoes? No, he should just be able to go to the local track, slip on a pair of Nike's and hit the ground running. Well, that's what Google is saying to software developers.
Software developers can now ignore the tedious, time consuming and often expensive task of building out their backend infrastructure and just rely on Google's.
Google will obviously charge for these services at some point, but the goal for the company is more ambitious than becoming an infrastructure provider:
If these web sites are "married" to Google's services, then that means more opportunities for Google to display its lucrative advertisements.
In order to sell more copies of Windows, Microsoft knew they'd need all of the hardware and software vendors to be "married" to its platform... Google wants to do the same for the web - have web sites marry themselves to Google's platform - so it can sell more ads.
In effect, Google is becoming the Operating System of the Web.
Considering Microsoft is willing to pay billions of dollars to acquire Yahoo!, it's clear that online advertising is the battle ground this war will be fought on. And Google just made its power play...
Is this "check" or "check mate"? Click here to leave your answer.
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Wayne Mulligan
Chief Investment Officer
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