I’ve been spending a lot of time thinking about the battle between Google and Microsoft and how it is largely counterproductive for both companies.
Since I spent a lot of my life in competitive analysis, I thought it might be fun to set out a strategy of how Google could take out Microsoft (which it is partially executing) and how Microsoft could take out Google (which it also is partially executing) and consider whether either one of these firms has any hope of being successful. So that’s my focus for this week. (I’ll also mention how Google may be planning on taking out Apple, and how Oracle may be manipulating the EU to avoid European Labor laws.)
I’ll close with my product of the week: the best netbook currently in the market.
Company Killing
When you are in competitive analysis, you spend part of your career thinking up ways to build products that will win in the marketplace and part of your time thinking about ways to kill key competitors. The reports you issue are highly confidential, and few people ever get to see them. The keys to killing a company, particularly a large one, are patience — something Google seems to lack — as well as perseverance; a tight focus on taking away the company’s air and ability to move; and destruction of the firm’s image (core to this is trust).
You need patience, because you have to let the company you are targeting do most of the work for you. If you move too quickly against a larger firm, it might put you out of business. Netscape is the poster child for this mistake.
You need perseverance, because you have to apply constant pressure over a long period of time to ensure the company doesn’t recover, and once dead stays that way. 3Com, now that HP has acquired it, is an example of what happens if the attacking company (Cisco) doesn’t persist.
Taking a firm’s air is removing its ability to grow revenue or borrow at favorable rates. You don’t need to destroy its revenue, you need to destroy its profitability. Once in a spiral, its momentum will help you do the rest. Lotus is a good example here; Microsoft effectively took much of its market, convinced the company to move to OS/2 prematurely, and spiked Lotus’ development costs. The coup de grace was getting IBM to do a hostile takeover, effectively destroying the company.
Finally, if you can destroy a company’s image, much like Apple has been trying to do to Microsoft for a couple of years, you can do serious damage to its ability to acquire and retain customers and employees. This can critically harm the firm and leave it unable to respond to the threat.
Taking Out Microsoft
Microsoft has already let its image decline sharply and has vastly greater difficulty acquiring employees than it once did. However, Google has aggressively painted Microsoft as evil and, at least for a time, was seen as a better place to be than Microsoft was, enabling it to capture key employees. Much of its effort is now focused on substantially reducing Microsoft’s revenue from keystone products like Windows, Office, Exchange and Windows Server. In addition, Google has Microsoft in a chase-from-behind R&D war on search, which chews up a substantial amount of company resources.
The U.S. government is Google’s strategic keystone client, and if it can be successful there, the result will cascade to other government entities, both local and abroad, as well as to a number of large enterprises. Microsoft would have to aggressively respond with both pricing and development, and the net impact would be staggering. Google doesn’t have to actually deploy — it just needs to stop companies from upgrading and renewing their enterprise agreements.
Assessment: Google is neither patient nor is it likely to be persevering enough. It is moving too quickly from step to step. (The Chrome browser to Chrome OS move should have been over several years — not months). Finally, Microsoft has moved to recover its image and is making progress.
Were Google to focus like a laser on the computer OEMs and provide a strong alternative to Windows, both desktop and server, it still could succeed. However, its’ confusing position on the Chrome OS and Android, coupled with its use of “build it yourself” servers should prevent it from developing the needed relationships. While Microsoft will likely find significant growth to continue to be elusive, it is unlikely Google will force the decline needed to take Microsoft out.
Taking Out Google
Google’s revenue stream is much simpler than Microsoft’s, but it’s relatively difficult to adversely impact. Google’s brand is also eroding, and — like Microsoft — Google seems unwilling or unable to effectively protect it. While this has little impact on its current revenue stream, it does make it potentially more of an antitrust target, and it makes it vastly more difficult to move against Microsoft. Replacing one evil empire with another is not very compelling.
Microsoft is attacking on two fronts: first, by going after search, which Google allowed to languish while focusing on other things, and second, by trying to shift much of the world’s news content — and related advertising revenue — away from Google. The search attack has had some marginal impact and should accelerate if the Yahoo partnership is approved. The content attack is less certain, because it is uncertain whether the content owners — mostly Rupert Murdoch — can hold out long enough to do critical damage.
Google has aggressively damaged its own employee loyalty with significant reductions in employee entitlements and unmet benefit promises that their billionaire CEO blocked to maintain profits. On top of that, Google’s hiring practice is nearly legendary for being abusive and discriminatory. (It is math- based, which discriminates against women, and the company appears to be predominantly male).
Assessment: Microsoft’s impact on Google remains negligible, but Google’s adverse impact on itself is both comprehensive and significant. The combination puts Google at increased risk, and Google’s CEO — like Netscape’s — has a skill set that will focus Google on going after the corporate market before the company has assured its current revenue stream.
To make sure Google fails, Microsot has to get between Google and the advertising dollars it depends on. This means both successfully removing the content it is targeting — and creating a trend to remove enough of it that advertisers begin to lose faith in Google — and going directly to the advertisers to collaborate on a more favorable alternative.
Advertising agencies are likely the key, and by nature, these are very political organizations. Attacking the problem orthogonally, by developing a set of unique tools that would assure their own customer retention and acquisition, should provide a path to taking control of the related revenue from Google. With control broken, they could deny revenue to Google by shifting it either back to the advertisers or to the content owners (taking the revenue for themselves would create antitrust issues). That should be enough to cause a cascading failure in Google.
This is too subtle for Microsoft. The company actually may have the skills in Kathleen Hall (who was positioned successfully against Steve Jobs with the Windows 7 launch), bu tit is unlikely it will fund or staff this effort to a level that would assure its success. As a result, Google’s exposures will likely be mostly internal for the foreseeable future.
Wrapping Up (With a Little Apple and Oracle flavor)
You can systematically take out a company; DEC, Lotus, Netscape and PeopleSoft showcase it can be done. The trick is to let the company itself do most all of the work. If you go directly, as Oracle did with PeopleSoft, the costs and the risk of antitrust interference are very high. With Sun, Oracle (“Snorkel”) appears to be manipulating the EU to either allow for a much lower eventual purchase price or to get rid of lots of Sun employees without running afoul of European labor laws. (Whenever Oracle looks like it’s doing something stupid, check your wallet.)
Google, on the other hand, may be shifting focus to take out Apple first — if, as is rumored, it brings out an MP3 player platform (Apple’s profits are closely coupled to the iPod and iPhone). Like the old Microsoft Plays for Sure offering, it may be the product of its CEO’s wish to bring Steve Jobs down (Steve fired him from the Apple board).
In any case, you can kill large companies. You simply have to trick the company you want to take out into do much of the heavy lifting itself. Surprisingly, that often isn’t really a very big problem.
Product of the Week: The Lenovo S12 with Nvidia Ion
Of the netbooks I’ve seen, one stands out as having the right feature set, so that you could actually live with it. Most netbooks are so limited in performance that using them for more than light browsing and email is incredibly painful.
Most have keyboards that are too small, and many seem to lack the quality most of us typically demand in a personal technology product. The Lenovo S12 with Ion graphics initially cost around US$600 with the critical Ion graphics (which Apple uses under another name for its own laptop products), and it easily outperforms some of the ultra light $2K and $3K products that were common earlier in the decade.
Unlike most netbooks, it runs Windows 7 premium and can be ordered with 2 or 3 GB of memory and a 250 or 320 GB hard drive. This isn’t your granny’s netbook. Be aware, this thing is so popular, there is a bit of a wait for it.
I’ve always thought that paying any price for a badly limited product was a bad deal. Because you can actually live with the S12, because it was the first and one of the most attractive netbooks with Ion graphics, and because Lenovo just treated me to one of the best desserts I’ve had in years last night, the Lenovo S12 with Nvidia Ion is my product of the week.
Rob Enderle is a TechNewsWorld columnist and the principal analyst for the Enderle Group, a consultancy that focuses on personal technology products and trends.
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For once an interesting exercise without too much sniping, except..
(Eric Schmidt) …’fired by Steve Jobs’
Well that’s just negative supposition. There was/is an FTC investigation into anti trust concerns about the close links between Apple/Google given Schmidt’s presence on both boards plus the increasing areas of conflicting products and services which reduced his effectiveness to board meetings when he had to excuse himself.
Their respective statements after Schmidt’s resignation did nothing to suggest it was otherwise. In fact, given their publicly stated mutual respect and friendship I would think being sacked is laughably wide of the mark.
But you being you, your ‘fired by Steve Jobs’ statement, makes sense if it lends your post some backbone.