Can we all agree that Google (Nasdaq: GOOG ) is the company that most scares Microsoft (Nasdaq: MSFT ) CEO Steve Ballmer? I ask because, if a story from Sunday's New York Times is to be believed, Oracle (Nasdaq: ORCL ) , not DoubleGoo, most frightens the Big Redmond Beast.
Writer Randall Stross, a business school professor at San Jose State, quotes another b-school big brain, Michael Cusumano of the Massachusetts Institute of Technology, in arguing that Mr. Softy would be better paired with German business software giant SAP (NYSE: SAP ) than with Yahoo! (Nasdaq: YHOO ) .
Tale of the tape
Seems fair to me. Both Microsoft and SAP sell to corporate customers, yet there's little overlap between these two. SAP specializes in chunky suites of code referred to as enterprise resource planning systems, or ERP.
Companies use ERP to manage whole departments digitally. Inventory management, for example; Oracle entered this business years ago with its own software. After seeing little success, CEO Larry Ellison went on a buying spree, beginning with a successful bid for PeopleSoft in 2004. Dozens more deals later, including an $8.5 billion bid for BEA Systems (Nasdaq: BEAS ) , Oracle has plenty to crow about: The would-be Yodas at SAP are struggling to maintain margins.
Microsoft is different. Whereas SAP thrives selling to what's called the "back office" -- think of software for handling production, delivery, and warehousing -- Microsoft is more attuned to the "front office" -- think of sales, customer service, and support.
Microsoft is for your PCs. SAP is for your servers. Mostly, at least.
This deal would be most compelling -- again, if Oracle is the target -- with databases. Microsoft has a really good one in SQL Server. Good enough that it compares well to Oracle's signature database, which remains a top brand and market leader.
SAP can't make the same claim, which is a serious problem. All meaningful corporate software programs need a database to store information. Inventory systems track parts. Manufacturing systems track production schedules. Customer services systems track complaints. You get the picture.
Thus, the case for a deal. Teaming with Microsoft would give SAP the database it lacks. Teaming with SAP would give Microsoft a more serious argument in competing against Oracle and IBM (NYSE: IBM ) for multimillion-dollar software accounts.
Waitaminute ... MicroSAP versus Google?
But, again, Mr. Softy's big worry appears to be the large and growing footprint of DoubleGoo.
We know because Microsoft Senior Vice President Yusuf Mehdi addressed precisely that concern in an interview published Feb. 18 in Adweek, which was important enough to Redmond that it was excerpted and filed in a document with the SEC. Quoting:
If you look at the numbers, there's one super dominant player in the industry in search. You can look at any of the numbers and see its share is about 75% of all searches or greater.
Translation: We need a deal with Yahoo! to keep Google from overrunning the entire digital advertising market.
How might a combination with SAP prevent that from occurring? Stross doesn't say, preferring instead to emphasize Google's limited moves in desktop computing. Quoting:
But were Microsoft to turn and head in SAP's direction, Google would have reason for concern. Whatever strengthens Microsoft is bound to influence, later if not sooner, its continuing competition with Google. For its own part, Google is keen to expand its foothold inside large companies. Last year, it acquired Postini, whose software filters corporate email. Google has not done so well with corporate customers on its own, however. Google Apps has conspicuously failed to win adoption quickly. [Emphasis added.]
So, if I read this correctly, as goes Google Apps, so goes Google? And, conversely, as goes Microsoft in the "back office," so goes its ability to destroy DoubleGoo?
I don't think so, Fool. Microsoft's war with Google has much more to do with defending its right to monetize the Web properties it already owns -- MSN, Hotmail, Live.com, etc. -- than a throwdown over who'll win the Ford account.
Bottom line: Search is the onramp by which many of us enter the digital highway each day. Google controls that toll road and has reaped billions in revenue as a result -- $16.6 billion in 2007 alone. Advertising accounted for roughly 99% of that total.
A deal for SAP may, indeed, make sense for Microsoft. Reports of one first surfaced in 2005 and the two companies have since spent time selling each other's software. My guess is they'll keep on doing so, with or without a broader accord.
But let's not pretend that truth has anything to do with Google. When it comes to Microsoft's online properties, MicroSAP wouldn't be anything more than a silly nickname.