Desperate Acts

Google and Microsoft are headed at each other with weak products and false humility. Don't believe it. They mean to kill.


Google and Microsoft are hungry to get into each other's business. Brace yourself for a battle of weaknesses.

Microsoft is expected to spend $650 million next year to let the world know it has a shiny new search service and Web advertising network. That money is more than double the amount Microsoft will spend rolling out Vista, the new operating system that will contribute vastly more to its revenues.

Microsoft's two-year catch-up effort in search has yielded only middling results. This year it dropped from 11% to 9% of all searches. Google handled 61% of the 204 billion searches worldwide in the past 12 months.

"We're late to the game. We admit it," confesses a full-page Microsoft ad in national papers, begging the world to try out its new Live search service. You almost want to hand Chief Executive Steven Ballmer a cup of cocoa.

The self-styled brilliant minds at Google, meanwhile, have never deigned to sell software the way Microsoft does. Google has soared to $9 billion a year in revenue in nine years essentially by giving software away, so long as users put up with ads alongside it. It has even signed up thousands of business users for a free suite.

But early next year Google will start charging big accounts in the corporate enterprise market--the prime turf of Microsoft--for a fully supported business version of its software. It has stitched together a suite of desktop applications, including stripped-down versions of e-mail, calendaring and chat to rent out over the Internet at prices far below what Microsoft charges. Word processing will come later.

"We're trying to solve old problems in new ways," says David Girouard, general manager of Google's enterprise business. "Microsoft Office costs companies several hundred dollars a year per employee. Think of ours as a few lattes a month." Google founder Sergey Brin adds: "We are working to change the perception that all things should be advertising-based."

And why not try something new? He and cofounder Larry Page didn't know a thing about advertising when they started.

Google versus Microsoft, the juiciest battle in tech, is spreading to new fronts, but instead of strength against strength, we get weakness against strength. Google's bare-bones office software is up against Microsoft Office, a $12 billion-a-year powerhouse product with near-total market share. Google's record outside search is mixed. Its news, e-mail and shopping sites each draw fewer than 10% of all Google visitors, according to Nielsen NetRatings.

But the Web has changed the game. It has grown from a repository of documents into a computer in itself, offering all the storage and processing power consumers and companies could want. Google can easily get into Microsoft's business. But then, Microsoft can counterattack.

"This game is far from over," says Steven Berkowitz, senior vice president of Microsoft's new online division. He was hired away from the top spot at the number four search engine, Ask.com, in April.

Microsoft launched Live.com a year ago, aiming directly at Google's search business. Like Google, it has text search and tools to sort through images, news, maps and books. It since has added features Google has had for a while, such as the ability to search for a word on just one Web site, limit retrievals to documents written in a specific language and see which Web sites link to each other. You can move a slider across a bar at the top of the screen to make search results more or less sensitive to how popular or how recently updated a site is.

Microsoft is flying camera-equipped planes around the globe to create 3-D versions of 100 cities, at $150,000 per location. The goal is to create a massively detailed, searchable map of neighborhoods and landmarks.

Fifteen cities already are searchable online. Microsoft will drop ads into the maps on computer-generated billboards. You'll be able to type "Starbucks" on your mobile while standing in San Francisco's Union Square and get a 3-D map guiding you to the nearest one. Microsoft acquired some of this technology in May when it bought videogame ad-broker Massive Entertainment.

In May Microsoft opened its new ad network, AdCenter, which it claims is better than Google's at getting users to click on links. Microsoft promises more hand-holding and better local search. It is opening large customer service sites in Dublin, London, New York and Seattle.

Search had been relegated to a product category in Microsoft's unprofitable MSN division. Now it straddles the whole company, including the Windows, Office and cell phone groups. Future versions of Office will let you search the Web without leaving a Word file. Office Live, a new Web offering, will have free tools to help businesses with fewer than ten employees set up Web sites and e-mail accounts. Big advertisers including Dell, American Express and Best Buy are signed up to advertise on those sites.

The idea is that people won't even bother going to Google. "Search becomes more like electricity. It is everywhere at the flip of a switch," says Adam Sohn, director of Windows Live. Take that, Google. You're no more exciting than San Diego Gas & Electric.

While Google has locked up the search business at Web destinations such as MySpace, Ebay International and aol, Microsoft recently landed Facebook and Amazon. (Then again, Google's Froogle shopping site competes with Amazon.)

Microsoft's greatest challenge is Google's formidable brand, which was built with no ad blitz. Several years ago AOL subscribers were given two sets of search results--one from AOL, the other said to be from Google--and were asked to rate which one was better. They selected the Google results--but it turns out Google hadn't provided those results at all; both data sets actually were provided by AOL.

A Googlecentric view of the universe posits that applying this potent brand to any old software makes that software more valuable. On a recent Friday afternoon at the Googleplex headquarters in Mountain View, Calif., workers preparing for a company-wide meeting were cutting open boxes of T shirts to hand out.

The shirts sported a picture of a chihuahua clenching a huge bone etched with the word "dogfood." At software companies "eating your own dogfood" means getting employees to use internally the same applications that you sell to customers. To give the chihuahua something to chew on, Google earlier this year bought Upstartle, an Internet company that makes the Writely word processing application, and developed its own calendar software. Oracle calendars no longer are in use at the Googleplex, and even Microsoft Word is fading fast.

In October Google bought JotSpot, which offers team-effort writing tools. Its apps have a fraction of Microsoft Office's capabilities, but they are designed to be highly collaborative. In 18 months Jot's group-oriented software has amassed 30,000 paying users at companies such as Intel, Symantec and Ebay, where employees use online Jot programs instead of Microsoft's to share travel and meeting plans.

Google's revenue from its unlikely foray into selling software probably won't be all that much to begin with, but this isn't a fight for sales. Think of this fight as determining a few decabillion dollars of market value circa 2010. The current figures are $147 billion for Google and $284 billion for Microsoft.