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Google Gets a Key Partner in Challenging Microsoft Office

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Thus far, Microsoft (NASDAQ: MSFT  ) has mostly downplayed the disruptive threat that Google (NASDAQ: GOOGL  ) Apps represents for its lucrative Office business. To be clear, Office is Microsoft's biggest cash cow, followed by Windows and servers. The business segment easily generated the most operating income last quarter at $4.1 billion.

You'd think Microsoft would take any threat to that business pretty seriously, but the company just doesn't see Google as a major contender. Microsoft business division exec Julia White told The New York Times late last year that Google hasn't "yet shown they are truly serious," saying they're still just an "advertising company." That may just be a public facade though, as Microsoft has reportedly set up a "Google Compete" team specifically to defend Office.

Either way, Google just got serious.

Thinking inside the box
As further proof that Hewlett-Packard (NYSE: HPQ  ) is sick of Wintel, the PC giant has just partnered with Big G to launch a new productivity offering geared toward small and medium businesses, or SMB. The package is called HP SMB IT in a Box, and HP is positioning it as a "one-stop shop" targeting the SMB segment.

HP SMB IT in a Box will notably include Google Apps for Business as a cloud-based productivity suite instead of Office, which promises to generate cost savings. Over 5 million businesses are now tapping the search giant's cheaper alternative. HP will provide the requisite hardware, including PCs and printers.

HP remains the No. 1 PC vendor in the world, grabbing 15.7% of the market in the first quarter, and is expecting a boost in sales next year when Microsoft stops supporting Windows XP. HP is a big partner to score for the Google Apps Reseller program.

Don't fear Apple
Even Apple (NASDAQ: AAPL  ) is getting into cloud-based productivity software, recently announcing iWork for iCloud at WWDC this week. During the demonstration, Apple kept pointing out that everything was taking place in a browser. The Mac maker made sure to point out that the new offering, which will launch in beta this fall, will support all of Office's common formats.

Microsoft doesn't need to worry as much about Apple here, though, since Apple almost never targets the enterprise directly. Apple has always gone after the mainstream consumer, and much of its recent enterprise momentum is thanks to the BYOD movement. Likewise, iWork for iCloud appears positioned toward meeting consumer productivity needs.

iWork for iCloud is also well behind Google Apps and Office 365 in terms of features, and it hasn't even hit the market yet. It won't be a big player in the enterprise.

Fear Google
The news is the latest in a string of collaborations between HP and Google. So far this year, HP has launched its first Chromebook, first Android tablet, and announced an Android laptop. After hedging its bets with those devices, HP is further diversifying away from Microsoft as part of its new multiplatform strategy.

The SMB segment is ripe for Google to target, as those businesses tend to be more price sensitive than companies in the Fortune 500. As Google continues to build up Google Apps, investors can expect the company to move up-market later on. Watch out, Microsoft.

As one of the most dominant Internet companies ever, Google has made a habit of driving strong returns for its shareholders. However, like many other web companies, it's also struggling to adapt to an increasingly mobile world. Despite gaining an enviable lead with its Android operating system, the market isn't sold. That's why it's more important than ever to understand each piece of Google's sprawling empire. In The Motley Fool's new premium research report on Google, we break down the risks and potential rewards for Google investors. Simply click here now to unlock your copy of this invaluable resource.


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