Microsoft and Google, two giants fighting it out for the future of software business. On the surface Microsoft and Google look similar. Both offer software, both have an online presence, both are technology companies. But their business models and revenue streams are nowhere near the same thing and that’s going to mean a lot for a long term competition.
What is Google?
Let’s look at Google. At it’s core, Google is a content company that derives revenue from advertisement. If you look at Google’s 10Q, 99% of their revenue comes from advertising services.
Google looks at online, desktop, and mobile software as content that can be offered free to users in exchange for advertising.Rather than having a blog, or a wiki, or a magazine, or pornography, or some other form of content, Google’s driving content is software. Software to search the web, software for email, software for editing documents, software for managing photos, software for getting directions, software for reading news and blogs. Google provides free web, desktop, and mobile software in exchange for advertising attention.
I’d like to note an exception to the above with Google’s business services, but that business unit is an insignificant revenue stream and has insignificant market share.
Google is best defined as a content producer, monetized by advertising. They are unique from what we would traditionally think of as content producers in that their free content is software and web services.
What is Microsoft?
Microsoft is a pure software company at it’s core. Microsoft designs, develops, tests, and packages software for desktop, server, mobile, handheld, tablet, vehicle, surface, and other devices. From operating systems to games to productivity tools, Microsoft is a company that produces licensable software across a breadth of industries.
Microsoft licenses software and sells support and maintenance contracts; targeting both business and consumer customers. Microsoft has the sales, marketing, and support infrastructure to back up a large software business.Gaming, media, advertising, consumer electronics, hardware, and other businesses Microsoft has extended into. Leveraging their software business they develop or advance new markets to sell software into.
At the end of the day, Microsoft sells software and has an ecosystem built around it for support, certification, maintenance, and development.
Winning the Consumer Market
Google is moving more and more into the consumer space. A space where advertising is a legitimate form of revenue generation. Google can continue to offer free software content to consumers and monetize through advertising. By offering software and services for free, Google is granted more leeway from consumers regarding the quality of the software… whether it be bugs or lack of functionality. Consumers are also okay with software being in a perpetual beta when the software is free.
For traditional software sales, Microsoft is maintaining it’s dominance. Despite all the bad talk in the press and blogosphere, Microsoft’s software business is still growing, as is the company as a whole.
Microsoft is cognizant of the intrusions into the consumer space by free software and web services from Google and other companies and is putting together strategies and making acquisitions for when the time comes that their software unit becomes flat. Today, there is still a lot of money to be made with traditional software sales, and Microsoft isn’t about to jump into the advertising for software content business until they’ve finished milking the software licensing cow.
Winning the Business Market
Today, Google doesn’t have the pieces in place to serve the business community. They have not invested in the sales and support infrastructure, nor have they invested enough in their business software offerings. Their business offerings are not as feature-rich, end to end, or functional as Microsoft offerings. Google does not have the world wide sales teams and support infrastructure that Microsoft has. Google has no certification program and a weaker partner network.
Google is a consumer facing company today, and from their investments it looks to stay that way for a long time. Microsoft is business facing and has leveraged that market to get to the consumer.
Recently, Microsoft has made investments and acquisitions in cloud computing and web advertising (including their recent $42 billion bid for Yahoo). Microsoft is in a dominant position overall and is getting prepared to compete when software goes more and more online. Remember, Microsoft still has a large web presence, a large IM presence, a large email presence, and a large social networking presence (especially in other countries). Microsoft is already ramping things up to take over when packaged software slows.
Google has a long way to go to enter domains Microsoft is dominant in. Microsoft has much less work to upset Google’s consumer web dominance.