Microsoft versus Google: What does it mean for you?
by Brad Liebmann, Managing Director, Xbridge Ltd
Business Money, September 2006
There has been much press lately about the looming battle between Microsoft and Google. Microsoft finally has real competition. Google wants to dominate your desktop - a position that Microsoft has monopolised the last three decades.
Dominating your desktop enables a company to charge what economists call "monopolistic rents". Microsoft earns $17 billion on turnover of $40 billion from its monopoly - a 43 percent after-tax profit margin! By comparison, Google currently earns about $2 billion of profits from $6 billion of annual turnover. The company that controls the desktop is also able to bundle other services and create other monopolies. Think Microsoft's Office software or Internet Explorer browser.
Microsoft won the last full-scale battle in the technology industry, handily beating Netscape in the "browser wars" of the mid-1990s. This battle will be different. Then Microsoft had a home-turf advantage, competing on the hard drive of the PC but this battle will take place on the networked world of Internet.Google's home turf. Both companies recognise that the software inside your PC is becoming less important. Both seek to deliver Software as Services (or SAS).
SAS enables customers to choose exactly which products they want but also which components of products they want. Updates are automatic and delivery immediate. Salesforce.com is a very successful SAS for sales force productivity. It now dominates many market niches in the US (although UK bank penetration has been surprisingly low). Companies that use Salesforce instead of Goldmine, ACT or SalesLogix have no software or servers to maintain. Customers pay only for the functionality they want, rather for functionality they will never use. By contrast, Microsoft launched Excel in 199[x] as a 3 MB programme. Excel is now a 75 MB programme, although must customers don't use more than 3MB of its capability.
Domination of the desktop via SAS is the vision of both Google and Microsoft. Google's vision has always been to organise the world's information and therefore it wants deliver everything the user needs via the Internet. Download the Beta version of Google Desktop to gain a clearer view of this vision. Highly customised information is aggregated from many sources (including your PC) and efficiently pushed to your desktop.
Microsoft recognises the model that has served them so well over the last decades must change. The advantage once gained from having its products preloaded on every boxed PC will no longer apply in a world where bespoke products are delivered through the network. Bill Gates has now taken a back seat in driving company strategy in favour Ray Ozzie, the original developer of Lotus Notes.
Lotus Notes pioneered the idea of working collaboratively and leveraging the power of a networked software application. As peer-to-peer networks have become important for entertainment (e.g., MySpace, Bebo, YouTube), so will such networks for businesses.
The commercial finance industry can apply this to our own industry. Those who offer highly tailored, flexible products can exploit niches that less flexible underwriters cannot (or will not). In the end, it is all about efficiently delivering what the customer wants.