Search giant Google (Nasdaq: GOOG ) is one of the biggest, baddest disruptors this side of the Pacific.
When the company launched its suite of productivity Web apps years ago, the one company that had the most to lose was none other than software bellwether Microsoft (Nasdaq: MSFT ) . It was a clear shot at Mr. Softy's lucrative Office and business division. At the time, it wasn't a huge threat, since Office was a full-featured offering while Google Apps was bare-bones in comparison.
The bigger they are
Microsoft has a ton to lose if Google can grab enough share of the enterprise productivity software market. Microsoft's business division has been the greatest contributor to operating income over the past five years, generating even more black ink than the flagship Windows operating system. That's $65.2 billion in operating income for those keeping score at home, while the Windows and Windows Live division brought in just $61 billion.
On the revenue side, the business segment has seen $101.1 billion in sales over the past five years, leading by an even larger margin relative to the $87.1 billion in Windows revenue.
The business division is home to Office, SharePoint, Exchange, Lync, and Office 365, which comprise 90% of the segment's sales. Google's recently launched Google Drive service includes a lot of collaboration and content management features, a partial threat to SharePoint even as SharePoint is a more comprehensive offering.
With our powers combined
According to The Wall Street Journal, Microsoft has even formed a "Google Compete" team that's tasked with dissuading Office customers from making the switch to Google Apps.
For example, one marketing company opted to go with Big G for its 4,000 employees since Office 365 was 50% pricier than Google's, and it lacked a certain "cool" factor that the search giant has. The marketing company dropped its $2 million contract with Microsoft and went with Google.
Still, Gartner estimates that Microsoft still claims more than 90% of the market, while its Exchange service serves up more than 80% of corporate email. Microsoft has acknowledged a few customer losses to Google, including big companies such as Costco that have also now made the switch. Gartner now thinks that Google is winning between a third and a half of new enterprise customers.
"All of a sudden this looks really serious," Gartner analyst Tom Austin told the WSJ. "By all accounts, [Microsoft] should be burying Google, and they're not."
To combat defections, Microsoft is now slashing prices by upwards of 20%, while also pumping up the sales commissions that it pays to third-party software resellers to a higher payout to salesmen than when they sell Google Apps.
Google is chipping away at Microsoft, but for now Microsoft remains top dog.
An asymmetrical picture
Looking at the bigger competitive picture between the two, Google has been a much bigger threat to Microsoft than the other way around.
Android and Apple (Nasdaq: AAPL ) iOS now dominate the smartphone market, even though Windows Mobile, the predecessor to Windows Phone, hit the market as early as 2003. That's a four-year head start over the iPhone and five over Android. Windows Mobile was a clear loser to iOS and Android. Amazingly, recent figures from Nielsen show that Windows Phone 7 still has a smaller market share than its ancient predecessor.
Additionally, the rise of tablets is a clear threat to Windows PCs, which are stagnating anyway, so Microsoft had better get its tablet-bound Windows 8 out the door posthaste.
Meanwhile, Microsoft's ambitions to challenge Google's search-advertising business have come up short, causing it to eat a massive $6.2 billion impairment related to its aQuantive acquisition in 2007. Google's overall market share has barely flinched since Bing's launch, and ad revenue growth remains as healthy as ever.
The biggest threats will be to Microsoft's biggest cash cows, Windows and Office. Google's Chrome OS still isn't meaningfully competitive with Windows, but we also said that about Google Apps and Office not too long ago.
Google's core business seems relatively safe from Microsoft's advances, but Microsoft's are very much under assault from Google.
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