Unless you spend your days exclusively surfing TMZ while drowning out the conversation of co-workers by blaring old Belinda Carlisle mix-tapes, you've probably been smacked in the face left and right lately with stories of Google's
Hot story or no news?
Unquestionably, the story has pizzazz, with Google's declaring outright its intention to take on one of the most entrenched and polarizing corporate figures of our time. However, we've known this was coming for a while. Sure, Acer's recent announcement that it would ship a netbook running Google's Android out of the box, as well as reports that Hewlett-Packard
Yet Chrome is much different than Android. It's being tailored from the start to be an operating system that can handle not just netbooks but also more powerful notebook and desktop machines, but will it be good enough to compete head-on with Windows?
Rapids ahead
Consider that Google's had its web-browser edition of Chrome out since last September, yet it only sports a 1.8% market share. The company's lack of headway in a market where consumers have a much greater ability to switch between products is telling. Google faces a far more vicious struggle in trying to get consumers to give up their familiarity with Windows to embrace a browser-based operating system.
Not only that, but the oft-mentioned axiom that IT departments are too accustomed to Windows and will be reluctant to switch rings true. It's hard to justify the cost savings of moving from a Microsoft OS platform when IT personnel and employees are already so familiar with it.
However, there is one important area where Fortune 500 companies could consider switching away from Microsoft -- and it could potentially hurt the Redmond giant's pocketbook even more.
Clear and present danger
I'm talking about business tools, the segment that Microsoft investors should be worried about. In its most recent quarter, Microsoft earned $2.83 billion in operating profits before taxes from its Business division, which is dominated by Microsoft Office and associated productivity applications. Compare this to the $2.35 billion Microsoft pulled down in operating profits from its Client segment, which includes the company's operating systems. Both business units carry out-of-this-world profit margins, but the business division is in a far more precarious position.
There's a growing community of office applications produced by titans of the industry. Apple
Based on its most recent results, Microsoft has a pre-tax operating profit margin of 63% in its Business division. While users are generally very comfortable using Microsoft's productivity tools, those tools are also expensive, and the switching costs are not nearly as great as changing operating systems. Most people only use a small percentage of the features on programs, and for the time being, Microsoft has fallen behind in enabling collaboration tools that are increasingly popular.
Being able to control the underlying operating processes is huge to Microsoft, and Windows pays off far more to its overall business than the Client revenue numbers reflect. But even if Microsoft took one on the chin and lost some low-end netbook market share, they'll still retain their enterprise users and, as an extension, most desktops at home. Office & Co. is Microsoft's real Achilles heel. The business applications are riper for the picking, and if IT departments are feeling the squeeze, Office is where they'll make the switch.
Call me crazy
Yes, lob your insults and spittle at me, but I'm going to end with the conjecture that the news might actually make Microsoft a better investment. The timing is suspect, but the company just promoted Steven Sinofsky, who runs a popular blog and is well regarded around the company, to run its Windows business. One of my greatest complaints about Microsoft's online search endeavors, despite the billions spent for little or no gain, is that they distracted management's attention away from innovating on their core products. Internet Explorer languished in its 7th edition while rivals stole market share, Vista was a PR disaster, and Office 2007 suffered repeated delays. Maybe facing some new threats in those areas will focus Microsoft's management back to these areas; from early reviews of Windows 7 and the Sinofsky promotion, it looks like that may just be the case.
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