When Lakshmi Mittal
announced that Mittal Steel was bidding 20+B$ on Arcelor, the french
financial world went berserk. For months, Arcelor's management did
everything it could to fight off Mittal, including trying to merge
with other European steel manufacturers. At the end of the day,
though, Mittal got his lunch. And so too, in all likeliness, Yahoo!
will become part of Microsoft in some way, shape or form. For, as
the following postulates, this is likely not about search. Rather,
this is about containing Google in order to inhibit its ability to
truly establish itself into any other market than search. And, for
better or worse, Microsoft's strategy will likely work.
Google, as if it needed
introduction, made close to 17B$ last year, the vast majority of
which came from ads. It's got a solid income, the very enviable
position of being the doorway of the Internet and a tremendous amount
of goodwill amongst technology enthusiasts and geeks all around.
It's often cited as an example by those working with or for startups
and VCs see it as the reason they should pour money into anything
that can be “useful” to millions of users. It's got plenty
of “cool” applications and seems to have a knack for always doing
“the right thing”. In short, Google is considered one of the
good guys for a lot of people in the IT world.
Microsoft, on the other
hand, is reviled in the IT world. Talk to almost anyone in this
industry and they'll have their own personal reason as to why
Microsoft is “evil.” Even some of its customers feel this way.
But for all its Darth Vador / The Borg reputation, Microsoft
continues to be the standard operating environment for the vast
majority of users out there. And that is a compelling
position.
For, whether true or not,
Microsoft's inability to truly innovate has not hampered its ability
to deliver its customers with products that embody others' ideas in a
form-factor that almost invariably leads to Microsoft's
implementation becoming the de-facto standard. And no matter how
many times visionaries cry out “foul” about Microsoft's “inferior
products”, Microsoft has a persisting habit of delivering its
customers with products that are “good enough” at the time they
are purchased and, albeit frustratingly, continue being “good
enough” with future upgrades despite previous versions of the same
products having been found to be unacceptable / problematic after
sufficient testing and/or use in the field. And while this state of
things drives techies crazy, it remains perfectly acceptable to those
that truly count for Microsoft: the decision makers.
And this is where
Microsoft beats almost everybody else in the IT world. They are
truly customer-driven. They don't care about ideals and they don't
care about technical feats. What counts is what the customer is
willing to pay for, nothing else. It's got a very diversified income
stream and is present in all market segments. Because of its
position, its revenues and goodwill amongst decision-makers,
Microsoft is a formidable force of nature.
Fortunately for the rest
of the IT world, Microsoft's lack of vision and talent provides
plenty of opportunities for creating successful ventures, Google
being a perfect example. Often times, however, these upstarts
believe they can defy the laws of market gravity because of their
initial successes. The focus for such companies should rather be on
solidifying their positions in earnest in order to avoid becoming
roadkill. Google in this regard does not seem to have succeeded.
For, while its revenues are large and its market share of search are
remarkable, it has but marginal revenues from anything else than
online advertisement, despite resources being allocated to address
needs in a slew of different market segments. Plus, it has failed to
make tangible inroads in the enterprise presumably because of its
seemingly stubborn insistence on offering almost nothing but cloud
computing – which, for all the hype surrounding it, does not have
that many enterprise adepts.
For all these reasons,
Microsoft's latest move looks like it puts Google on the defensive. Whether
or not the Yahoo! acquisition occurs on the short term or not makes
no different. Microsoft has demonstrated its willingness to take the
#2 spot in the online advertising business and they have in the past
clearly shown their lethal ability to plan, execute and prevail. The
end result of grabbing #2 is that Microsoft will in effect force
Google to concentrate all its efforts in staying #1. And that
is likely a problem for Google because they had plans for being more
than just a search engine. Yet those plans will come under pressure
as Google is forced to defend its core business, something it has not
yet had to do.
In hindsight, therefore,
Google's top-brass' eagerness to have the company become active in a
variety of endeavors of which none are profitable on the short term,
might prove to be detrimental. For, as is mentioned above, while
tech companies do strive on innovation, they also need to diversify
revenue and, as we stand, Microsoft's move, no matter how long it
takes to materialize, might have seriously shortened Google's runway
to diversification. Especially as this diversification requires
Google to either find new sources of revenue or tap into existing
markets where Microsoft has been and continues to be “good enough.”
A few additional comments
and pointers:
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In discussing
“What's in store for IT and the CIO in 2008” , CIO magazine has the following to say about Google: “For all its talk,
money and bluster, Google fails to win over the CIO or the enterprise. Another year goes by in
which Google talks the talk but doesn't walk the walk.”
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In “IE still top dog over Firefox in corporate browser kennel”, ComputerWorld describes how Firefox has yet a long way to go before competing with IE in the corporate world. This is certainly nothing good for Google, especially in light of Microsoft's known habit of leveraging its stronghold on existing platforms for launching new ones. And it definitely highlights how tough it is to fight Microsoft on its own turf. Despite the mozilla code having been open-sourced, despite Firefox being widely popular to consumers and despite Google's financial backing of the Mozilla foundation, IE is still the standard browser in the enterprise.
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In “Can Microsoft and Yahoo do More than sell ads? The SMB opportunity”, ZDNet blogger Joshua Greenbaum argues that Google faces a huge challenge in a duel with a combined Microsoft/Yahoo!: “... consider the extreme strategic deficit that Google will now face in trying to combat a Yahoo-like cloud environment infused with Microsoft’s enterprise and business user software, aided and abetted by what is arguably the best SMB channel partner base in the industry.”
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In “Silicon Valley after a Microsoft/Yahoo merger: a contrarian view”, Marc Andreesen argues that the merger changes nothing (or might even be beneficial) to the startup ecosystem.
