Could Google surpass Microsoft?

An intense battle is unfolding in the tech industry, with the victor holding the potential to shape the future of computing. Both sides are armed with cutting-edge hardware, software, and the influence of the Internet. It has been fierce, and the competition is only expected to escalate.

On one side of this technological conflict stands Microsoft, founded in 1975 by Bill Gates and Paul Allen. As of June 2010, Microsoft shares were valued at $26 each, giving it a market value of $227 billion [source: Wolfram|Alpha]. Its flagship product, the Microsoft Windows operating system, has helped it maintain dominance in the PC market, with over 91 percent of all PCs running Windows [source: Net Applications].

On the other side, the emerging contender is Google. Established in 1998 by Larry Page and Sergey Brin, Google aimed to become the leading search engine on the Web. Despite the Web's existence since the early '90s, Google managed to catch up and today stands as a dominant force on the internet, offering an array of services from mapping tools to mobile platforms. By June 2010, Google's stock was valued at $488 a share, with a market value of $119 billion [source: Wolfram|Alpha].

After a challenging period that saw Microsoft’s stock drop below $16 per share in March 2009, the company made a strong recovery. Google, which had fallen to as low as $263 per share in November 2008, matched Microsoft's rebound, proving its ability to endure and bounce back even in tough times. Despite both companies making significant cuts for the first time, neither shows signs of halting their growth trajectories as they continue launching new products and expanding their presence in existing markets.

Who will dominate in setting the trends? Will the disruptive newcomer outshine the established software giant? Could their overlapping markets influence the outcome of this rivalry?

Google vs. Microsoft

In its first decade on the internet, Google and Microsoft didn't initially seem like direct competitors. Google’s primary offering was a search engine, with its revenue stemming from advertising. Microsoft's main products, on the other hand, consisted of an operating system, office suite, and various other software. So, where did the competition arise?

Today, there are multiple areas where Microsoft and Google intersect. Both companies have ventured into each other's core product areas while also expanding into new markets.

Microsoft's attempt to compete directly with Google came in the form of Bing, a search engine launched in 2009 as an improvement over its previous Live Search and MSN search platforms. Bing shares a similar design and functionality with Google's search engine. However, it has not seen massive success in the market: as of February 2010, Nielsen reported that Microsoft's search engines (Bing, Live Search, and MSN) together accounted for only 12.5% of online searches, far from Google's dominant 65% share [source: Nielsen]. Even adding in Microsoft's 10-year partnership with Yahoo, which contributed 14%, it still falls short.

In an effort to rival Microsoft’s Office suite, Google introduced its web-based productivity tool, Google Docs. This suite includes a word processor, spreadsheet, slideshow creator, form builder, and drawing tools—all accessible from any web browser. Google Docs also facilitates collaboration by allowing multiple users to edit the same document simultaneously. Although convenient and accessible, Google Docs lacks some of the advanced features of Microsoft Office and relies on Google for privacy and uptime.

Microsoft countered with Office Live Workspace (OLW), a free online version of its Office products for collaboration. OLW seamlessly works with files in Microsoft’s proprietary formats for documents, spreadsheets, and presentations. Additionally, SkyDrive offers 25 GB of file storage space [source: Microsoft]. However, OLW wasn't created overnight; Microsoft leveraged its existing SharePoint software (a well-established but expensive solution) to develop the new free service [source: Foley].

Both Google and Microsoft have entered the mobile operating system market, though neither has managed to unseat Apple's iPhone, which holds nearly 60% of the market share [source: Quantcast]. While Google’s Android continues to grow rapidly, it currently commands double the market share of Windows Mobile [source: Net Applications]. Will Windows Mobile endure? Microsoft is setting its sights on the iPhone, positioning its upcoming Windows Phone 7, slated for release in late 2010, as its next big move.

In addition to mobile platforms, both Google and Microsoft provide web-based email services. Both are also investing heavily in cloud computing solutions, recognizing the increasing importance of the Internet for everyday users. While Google has the advantage of being a web-based company, Microsoft brings decades of experience in application development and consumer research to the table. Let's take a closer look at the strengths and weaknesses of each company.

Google and Microsoft Strengths and Weaknesses

One of Google’s potential advantages over Microsoft lies in public perception. Google's core belief, "you can make money without doing evil" [source: Google], has helped build a strong reputation for innovation and customer service. The company's headquarters, the Googleplex, is renowned for its unique facilities and work culture.

Microsoft once enjoyed a similar reputation, but after years of dominating the operating system market, it became synonymous with the establishment. Over time, Microsoft has faced intense criticism for some of its releases, which suffered from stability, security, and compatibility issues. Windows ME and Windows Vista, for example, made poor first impressions. Although Microsoft addressed many of these concerns with patches, the damage had already been done. Nevertheless, Microsoft regained some respect with subsequent releases like Windows XP and Windows 7, which were better received.

Google has a stronghold in the web space. According to analysis firm Efficient Frontier, Google commanded 75% of the search engine advertising market in Q1 2010. Google's web-based email service, Gmail, has seen steady growth, increasing by 27% from 2009 to 2010, while Yahoo Mail is losing ground [source: Saint and Angelova]. Besides its search engine, Google offers a suite of online tools, including productivity software, video and photo sharing, and mapping services. Google has also ventured into the OS market with its mobile platform, Android, and the web-based Chromium OS project. However, Google still lacks a strong presence in desktop applications that can operate independently of internet connectivity.

Microsoft holds a dominant position in the desktop application market. In addition to the Windows operating system, Microsoft is behind the Office suite of productivity software, server software, and the Internet Explorer web browser. The company also plays a major role in the gaming industry with its Xbox consoles and games. While Google has ventured into many fields, it has yet to make a significant impact in the video game market, which remains a stronghold for Microsoft.

If consumers begin to gravitate toward low-cost machines with limited processing power, Google could gain an advantage. This is because almost all of Google's services are web-based, requiring only a web browser to access. Google's Chrome browser, which rapidly ascended to third place in market share, could also pave the way for the Chrome OS to challenge traditional desktop operating systems in the future.

However, if consumers opt for the latest and most powerful computer hardware, Microsoft holds the upper hand. Its products are often feature-rich because they leverage the computer's native processing capabilities. Web-based services, by contrast, tend to be simpler—not because the devices running them are less powerful, but because current broadband speeds often fall short of delivering an optimal user experience.

Google and Microsoft Partnerships and Rivalries

A crucial strategy for both Google and Microsoft involves seeking out smaller companies that excel at developing particular products or services, and either partnering with them or acquiring them. Both companies have secured high-profile deals that have enhanced their positions in the market.

In 2005, Google acquired 15 companies for a total of $85 million. The companies varied, including an analytics start-up named Urchin and a 3-D drawing tool called SketchUp [source: Google]. Among its most significant acquisitions was DoubleClick, an online advertising firm, which Google purchased for $3.1 billion in 2007 [source: Economic Times]. Google also formed partnerships with major players like AOL, NBC, and the DISH Network, focusing mainly on online and over-the-air advertising.

In the midst of economic difficulties in 2008-2009, Microsoft acquired 22 companies [source: Microsoft]. Similar to Google, Microsoft targets companies whose products or services complement its core operations. These acquisitions often evolve into divisions within Microsoft, helping to support products such as the Xbox console and Zune music player.

Microsoft and Google have both clashed over acquisitions, including Yahoo. When Yahoo faced financial difficulties in 2008, Microsoft tried to acquire the company. However, Yahoo's leadership rejected Microsoft's offer, and Google swooped in to form an advertising partnership with Yahoo. The U.S. government raised concerns about the potential for a Google monopoly in the search ad market. Microsoft responded in 2010, securing a deal in which Bing would power Yahoo's search results in exchange for ad revenue. Both U.S. and European regulators approved the Microsoft-Yahoo deal without conditions [source: Singel].

Microsoft and Google have also vied for crucial partnerships to enhance their mobile platform market share. Android's mobile OS quickly grew from 5 percent in January 2009 to 20 percent by May 2010 [source: Quantcast], supported by key deals with manufacturers like Motorola and effective advertising. In response, Microsoft struck a deal with Motorola in March 2010, making Bing the default search engine on Motorola's Android devices [source: Gardner]. As Android advanced, Windows Mobile lost market share, but Microsoft aimed to recover ground and beyond with the anticipated release of Windows Phone 7 in late 2010 [source: Oiaga].

Despite the fierce competition, Google and Microsoft occasionally collaborate. In one instance, they teamed up to petition the Federal Communications Commission (FCC) for access to unused TV frequency bands known as white spaces. Along with HP and Motorola, they formed the White Spaces Database Group, which proposed new protocols to enable wireless broadband access via these white spaces. The FCC approved the request for unlicensed use in November 2008. In 2010, Google was appointed as one of the administrators of a database for white space devices [source: Whitt].

Microsoft and Google Future

It's probable that the rivalry between Google and Microsoft will intensify in the future. Both companies are broadening their core businesses. Microsoft is working on strengthening its online presence, while Google continues to develop services that serve as alternatives to traditional desktop software. Both companies are actively seeking potential acquisitions and partnerships to reinforce their positions in the market.

Neither company is in a dire situation. While both have been affected by the global economic downturn, they have managed to bounce back. Each company had to make tough decisions, including job cuts, for the first time in their histories. However, both companies remain valued at billions of dollars, have recovered from their financial losses, and are still moving forward with new products and services.

Google appears to be riding a wave of momentum. The company has built a strong reputation for innovation. It’s renowned for offering its employees 20 percent of their workweek to focus on personal projects. Many of these projects eventually find a home in Google Labs, a special section on Google's site where users can explore new services. These experimental offerings often evolve into fully realized products.

However, many of Google's services seem to remain in a state of beta. In the tech world, 'beta' refers to products still in testing—meaning they aren't fully polished and users may encounter bugs or other issues during use. For instance, Google introduced Gmail in 2004, but it wasn't until five years later that it shed its beta label [source: Coleman]. Despite its efforts to diversify, Google's search engine remains its most significant financial success. According to the U.S. Securities and Exchange Commission, a staggering 97 percent of Google's revenue comes from online advertisements [source: SEC].

The release of Windows Vista faced a negative public and corporate reception, but the favorable reception of Windows 7 has helped reverse the situation. The Windows operating system is one of Microsoft's flagship products. As cloud computing continues to gain traction and the necessity for powerful personal computers is increasingly questioned, Microsoft needs to adjust to this evolving market. Products like Office Live Workspaces are a step in that direction, and the company is launching additional cloud-focused initiatives. Microsoft is positioning itself for a strong comeback, and it has the means to achieve this.

The competition remains intense in certain areas, but both companies continue to stand strong, and it seems unlikely that Google will be delivering a decisive blow to Microsoft in the near future.