Microsoft: ‘We Are Watching Google’

UPDATED:* Maybe it was back in 1999 when Google took its Web site out of beta.

Or maybe it was in 2002, when the Mountain View, Calif.-based search giant
launched the Google Search Appliance.

Or perhaps it was when Google launched Gmail in 2004.

If it’s none of the above, then surely, Google officially threw Microsoft the
gauntlet this week when it announced Google Apps for Your Domain.

“We are very serious and committed to the enterprise space,” noted Matt Glotzbach, head of enterprise products at Google.

And the world’s largest software vendor has noticed this threat.

While a Microsoft spokesperson denied that the
company considers Google a competitive threat to its Information Worker
business, she admitted that, “we are watching Google.”

The new offering, currently in beta testing, is an ad-supported solution
that includes Web e-mail, instant messaging, voice calling and collaborative
calendaring, as well as Web page design, publishing and hosting.

The solution also includes a Web-based control panel for domain

Google is initially targeting small- and medium-sized
businesses (SMBs), the most likely candidates for a solution that lets users
access critical business communications tools without having to pay for
software or an IT staff to maintain an infrastructure.

Glotzbach said that, “for some sets of users,” Google Spreadsheets and
Writely could rival Microsoft’s bread and butter productivity tools, like
Word and Excel.

He noted that the hosted version of the productivity tools also allow for
easier collaboration among co-workers.

Glotzbach also confirmed that Google plans to offer a premium service with
more enterprise-ready applications and stringent service and support
agreements later this year.

Microsoft said that Office Live provides the same low-cost benefits to SMBs
as the Google offering.

The spokesperson also told that “increased
collaboration is one of the key areas addressed in the 2007 Office system”
due out next year.

This “watchfulness” may well prove a bonanza to business users, who
are likely to extract price concessions and better service levels from the
rival vendors.

Laura DiDio, an analyst with the Yankee Group who follows Microsoft, noted
that the big winners in this tussle are going to be customers.

“Competition means better service and support, and more accommodating
vendors,” she said.

Greg DeMichillie, lead analyst with Directions on Microsoft, noted that
competition from Linux drove down Microsoft’s prices on large Exchange
Server installations.

Google Apps, he said, “cramps Microsoft’s ability to raise prices.”

To put the competition in proper perspective, though, Google’s enterprise
business generates in the tens of millions of dollars, according to Google
spokesman Mike Nelson.

Microsoft’s Information Worker division dwarfs that figure with $11 billion in revenues.

But analysts are quick to point out that IBM once lorded it over Microsoft,
and that Novell was once the top dog in server operating systems.

Microsoft now faces the difficult challenge of holding onto the top spot.

“Bill Gates always said what he feared most was a younger version of
himself,” DiDio said.

Several industry observers believe that Google poses a threat to Microsoft’s
enterprise business.

“If I were Microsoft, I wouldn’t be losing sleep today, but I would be
keeping my eyes on them,” said DeMichillie.

Gartner analyst Whit Andrews believes that Google even poses a more
immediate threat, particularly in the SMB market, where the cost of
Microsoft Office products could drive a decision Google’s way.

Andrews said that Microsoft lost an opportunity several years ago to develop
its own hosted small business application.

“There should have been Hotmail for domains in 2001,” he said.

Now, “Google can walk in the door of the small enterprise on the back of a
tiny IT developer working out of a garage; that developer supports maybe 15
to 20 small businesses.

“The developer tells his customer, ‘You’re growing.
Let’s go to Gmail for domains instead. Your e-mail will be searchable, and
sometime in the near future it will integrate with the Google Mini appliance
I will help you buy.’

“And everybody says that sounds like a great idea.
Hurray! And Microsoft has lost an opportunity.”

But if Google is to succeed in this space, it has to first improve its
feature set.

According to DeMichillie, Google needs to tie together its e-mail and
calendar functions better, and needs to make its solution accessible when
users are off-line.

“From a feature perspective, it’s not really good enough,” he said.

Analysts also question whether Google is fully committed to fighting
Microsoft in this arena.

The company may simply be testing a subscription model to offset any
softening in the advertising space, all while increasing its inventory to
whatever SMB users take up its free service.

“It’s hard to know with Google what is a strategic plan and what is the
result of that 20 percent free time they give developers,” said DeMichillie.

Glotzbach himself noted that the product is still in beta, and could be
pulled if user reactions are negative.

“We’ll be looking at the reliability of the service, our ability to
guarantee uptime and our ability to support that service,” he said.

In the end, users may be the big winners in this tussle for application

Competition may drive not only price, but also the pace of innovation.

Andrews said that the search function available in Microsoft’s Vista next
year “is a direct response to Google desktop search.”

He also speculated that Microsoft may end up offering its own hosted
solution for domains.

“There is no question this is going to force Microsoft to respond,” he said.

*We had originally
published that Google’s enterprise business generates approximately $1.2
million. Google does not break out enterprise revenue separately.

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