Google, Microsoft and Evolution

Up until recently, Microsoft has trounced anyone that got in its way. The classic example is Netscape. Recently, however, “Microsoft Says Google Success a ‘Wake-up Call'”:

“The success of Google opened Microsoft’s eyes to the riches available in Web advertising, the chief technologist for the world’s largest software maker said on Tuesday.

“‘It was a wake-up call within Microsoft,’ company chief software architect Ray Ozzie said at a Goldman Sachs investor conference in Las Vegas.

“Google’s success alerted Microsoft to the financial power of advertising and how it might complement revenue from subscriptions for its desktop software, he said…

“Google derives almost all of its $10.6 billion in annual revenue from advertising, while Microsoft’s loss-making Internet arm generated $2.3 billion in sales last year. Microsoft makes most of its money from its dominant Windows operating system and Office software suite.

“‘It is critical for Ray Ozzie to rethink how Microsoft competes in the Web world, because it is a totally different landscape out there, and if Microsoft doesn’t adapt, it will get left behind,’ said Morningstar analyst Toan Tran.”

Advertising vs. Software?

The above article makes it appear as if the battleground is advertising versus software. Reality is different. On Feb. 22, the AP reported, “Google Unveils Web-Based Office Software”:

“Google Inc. will begin selling Corporate America an online suite of software that includes e-mail, word processing, spreadsheets, and calendar management, escalating the Internet search leader’s invasion on technological turf traditionally dominated by Microsoft and IBM.

“The expansion, to be unveiled today, threatens to bog down Microsoft Corp.’s efforts to persuade businesses to buy the latest version of its market-leading Office suite that was developed along with its new Vista operating system.

“Google’s software bundle, to be sold for a $50 annual fee per user, also poses a challenge to International Business Machines Corp. and its Lotus suite…

“Google has been offering a free version of its online software suite, called Google Apps, for the past six months. More than 100,000 small businesses and hundreds of universities nationwide are using the free service, Google said.

“The fee-based version, Google Apps Premier Edition, includes five times more e-mail storage — 10 gigabytes per e-mail box — as well as a guarantee that all services will be available 99.9% of the time with around-the-clock technical support. Google also is adding mobile access to e-mail accounts through the BlackBerry devices that tether workers to their offices.

“‘This is a big step for us, but I think it’s a reasonable step,’ Google Chief Executive Eric Schmidt said in an interview Wednesday. ‘Our product is so cheap that it’s sort of no-brainer to try it out.'”

Upgrade Price Wars

Note: This section is technical. Nongeeks should concentrate on the price differentials and skip the rest.

Desktop Linux is looking at “Upgrade Price Wars: Vista vs. Linux”:

“Bottom line time, it will cost you $724 per PC to upgrade to Vista. Or you could pay $170 per PC to get SLED (Linux that comes with business support). That’s a savings of $554 per user desktop.

“Now, you could argue that you can do better with Vista pricing than that, and the like. I won’t argue with you. You can also drop the software costs of everything on the Linux side to zero. How? By firing your MCSE (Microsoft-certified software engineer) IT staffer and replacing him with an NLCE (Novell-certified Linux engineer) professional and switching over to openSUSE 10.1 and using purely open source solutions. When it comes to software and IT costs, there are almost endless variables. One thing, though, is certain: The upfront costs of a Linux desktop are far lower than Vista’s price tag.

“You may feel absolutely sure that your users will find it much harder to move to SLED than to Vista. There, I will argue with you. Take a long, hard look at Vista, then take a look at SLED. Do the same thing, for that matter, with Office 2007 and 2.0. If your mind is at all open, I think you’re going to find that users will face pretty much an even learning curve, no matter which operating system you switch to.

“Putting aside all issues of Linux being more secure than Windows, and Vista lacking almost every significant feature it was supposed to include, just looking at the dollars and cents, just looking at getting office work done, SLED, the Linux desktop, is unquestionably the better choice over Vista.”

Vista Security Cracked

If those were not a big enough headache in and of themselves, it seems, “Vista Activation Cracked by Brute Force”:

“It looks like Microsoft’s unhackable OS activation malware has been hacked…

“It is a simple brute force attack, dumb as a rock that just tries keys. It is ugly, takes hours, is far from point and click, but it is said to work…

“The method of attack has got to be quite troubling for MS on many grounds. The crack is a glorified guesser, and with the speed of modern PCs and the number of outstanding keys, the 25-digit serials are within range. The biggest problem for MS? If this gets widespread, and I hope it will, people will start activating legit keys that are owned by other people…

“So what do you do? There is really no differentiating between a legit copy with a manually typed in wrong key and a hack attempt. Sure MS can throttle this by limiting key attempts to one a minute or so on new software, but the older variants are already burnt to disk…

“There is nothing MS can do at this point other than suck it down and prepare for the problems this causes. To make matters worse, MS will have to decide if it is worth it to allow people to take back legit keys that have been hijacked, or tell customers to go away, we have your money already, read your license agreement, and get bent, we owe you nothing.”

I can go on and on about problems with Vista, but I won’t. Every release of Microsoft is the same. New Microsoft releases are plagued with so many problems, yet people keep buying the company’s software anyway. Will it be different this time?

Time to Switch?

Wired takes up that question with an appropriately named article, “Google Apps: Should You Switch?”:

“Google’s new Web-based office software suite, which the company announced Thursday, is a swift kick to the teeth delivered squarely in the direction of Microsoft. Or is it?

“Google Apps Premier Edition is a collection of office tools for businesses — word processor, spreadsheet, e-mail, calendar, and Web page creator — all of which are accessible through a Web browser. Pricing is set at $50 per user per year, less expensive than Microsoft Office, but with much the same functionality. Microsoft has its own Web-based suite of tools in Office Live, but the company’s offering doesn’t match Google’s. And Google isn’t going after Office Live, it’s going after Office…

“Reasons to switch to Google’s Web-based office suite:

  • Cost. Compared with the $500 list price for the full version of Microsoft Office Professional 2007, Google’s $50 per year price tag is cheap. Telephone, e-mail, and Web support are included in that price, so organizations could see a drop in IT support costs as well…
  • Centralized data storage. Documents are available from any Web browser, upping the convenience ante for remote workers. Plus, 10 GB is plenty of room. For most users, that’s more than they’ll ever need
  • Security… A bonus: Gmail arguably has the best spam and virus filters of all the Web-based e-mail services…
  • 24/7 access to the work space. The beauty of Web-based applications is that they are accessible from any computer with an Internet connection, anywhere in the world. Also, every worker in the company gets the same tool set — like a standard corporate software install without the production and installation costs
  • Cut the Microsoft leash. Any company switching to Google Apps will be free of Microsoft’s sluggish upgrade cycle and confusing, restrictive licensing requirements.

“Reasons to stay on the desktop:

  • Privacy. This is a big one. Persuading any company, large or small, to store sensitive intellectual property, financial documents, and customer data on a server owned, sheltered, and maintained by Google would take a truckload of trust…
  • Regulatory compliance. Certain industries are bound by regulations concerning storage, transfer and privacy of data…
  • Google Apps is incomplete. Where’s the PowerPoint killer? Also, anyone who keeps their entire contact list in Outlook is going to be seriously underwhelmed by Gmail’s contact-management features
  • Working on the Web is weird. Users who have grown accustomed to the smooth responsiveness of desktop applications will feel like a stranger in Web 2.0 land. Latency issues, Ajax-powered user interfaces and the absence of true drag-and-drop functionality will prove a turnoff for many
  • No offline access. Even in today’s ‘always on, always connected’ corporate environment, the tubes occasionally get clogged. Plus, there’s no Wi-Fi on airplanes yet. Web-based applications are useless when the user isn’t connected to the Internet. Also, documents stored at Google can’t be retrieved when Google can’t be reached.”

Wired sums all of this up and concludes, “There are just as many reasons to stick with the status quo.” I disagree. Microsoft is an aging dinosaur. Still, that has not stopped it yet. So let’s look at things in another light. Where is Microsoft’s growth going to come from? India? China? Brazil? Think again. Are those countries going to shell out big bucks for Vista, or go with Linux for free?

The answer should be obvious: Linux. The savings are simply too great. Paying $500 for Office with the programming staff required to support it is eventually just not going to fly, either. Those few who need PowerPoint or special graph features in Excel likely have a genuine need for Office. For everyone else, forget about it.

Still, large mainstream businesses will be reluctant to change until costs force the issue. In that regard, Microsoft is more likely to slowly fade into the sunset over time than succumb to any quick knockout blow. In the meantime, expect Google and Open Office to put increasing pressure on the price Microsoft can get for its software.

At $50 a year, when that includes disaster recovery, backups, remote access, and zero upgrade hassles, Google Apps look increasingly attractive, just as the cost of Microsoft software looks increasingly overpriced.

Dell Considers Linux

On March 7, Reuters reported Dell might offer Linux as alternative to Windows:

“Dell Inc. is considering offering the Linux operating system as an alternative to Microsoft Corp.’s Windows on its personal computers, a Dell spokesman said on Tuesday.

“The PC maker said it received more than 100,000 customer requests for Linux in a “suggestion box” posted on Dell’s Web site less than three weeks ago.

“‘We are listening to what customers are saying about Linux and taking it into consideration,’ said Dell spokesman David Lord. ‘We are going forward. Let’s say, Certainly stay tuned.'”

If you thought price does not matter (100,000 customers in three days), think otherwise. Even though Open Office and Google Apps are not as good as Microsoft Office, for many people (perhaps most) Open Office or Google Apps will be good enough.

Copyright Issues

Has Microsoft has seen the writing on the wall when it comes to software sales? Perhaps. They are now attempting — too little, too late (as well as too big, and too cumbersome) — to challenge Google over ad revenue. With that in mind, please consider Microsoft’s attack on Google regarding copyright issues:

“Microsoft on Tuesday launches a fierce attack on Google over its ‘cavalier’ approach to copyright, accusing the Internet company of exploiting books, music, films and television programmes without permission.

“Tom Rubin, associate general counsel for Microsoft, will say in a speech in New York that while authors and publishers find it hard to cover costs, ‘companies that create no content of their own, and make money solely on the back of other people’s content, are raking in billions through advertising and initial public offerings.’

“Mr Rubin’s remarks, presaged in an article in Tuesday’s Financial Times, come as Google faces criticism and legal pressure from media companies over services allowing users to search online for books, films, television programmes and news. Viacom, the US media group, instructed YouTube, which Google owns, to remove 100,000 clips of copyright material.”

The Financial Times is writing about the rights and wrongs of Google content:

“Google now faces a backlash from publishers that make the professional ‘content’ – from films to television programmes and books – on which it relies. They argue that Google is playing fast and loose with the intellectual property of others in order to attract users to its services…

“It must be fun for Microsoft, accustomed to defending its own dominance of personal computer software, to have a David-like dig at the Internet’s Goliath…. Companies, especially powerful ones, cannot get away with riding roughshod over the wishes of smaller enterprises just because it suits them. Microsoft has discovered that painfully over the years. Now it is Google’s turn.”

Attempting to portray itself as David in a battle with Goliath (as Microsoft is attempting to do) seems laughable. Besides, exactly when did Microsoft learn it could not ride roughshod over smaller players?

Regardless of what Microsoft wants you to believe, this battle has nothing to do with copyright issues, or David vs. Goliath either. This yapping shows that Microsoft is increasingly concerned about its business model. And with attacks on that business model from Linux, Open Office, Google, and Apple, Microsoft should be concerned. This is what happens to aging dinosaurs when evolution passes them by.

Mike Shedlock ~ “Mish”

March 7, 2007

The Daily Reckoning