One of the most interesting things through the years at Microsoft was to follow the competition as they came and went. It was an annual ritual at the Microsoft Global Sales summit to listen to the COO, Steve B, or Bill G list and talk through the key competitors for the year. It seemed every year there was a new competitor, some of the old (Oracle and IBM), but like the industry it was a list in constant motion. Not a year would go by without Billg saying the biggest fear from a competitive standpoint was that small hungry startup that just wanted it more than Microsoft.
In 2001 Eric Schmidt left his job as CEO of Novell to take over the helm at what was then a little know start-up called Google. Eric was a well-respected man in the industry, one of those people who had great technical skills combined with good business acumen. When he had left Sun Microsystems to take over Novell in 1997 I think everyone said aloud, “Why?”. At the time everyone could see that Novell was a sinking ship. Now moving in to Google I think everyone thought this was a promising move for one of the industry’s top talents. Little did anyone realize how good a move it would be. It was a young hungry start-up.
In the world of industry I am not sure there is a commercial sector that as part of its sales training does not recommend Sun Tzu’s classic “The Art of War”. One of the basic tenants laid out on the book is going into battle against superior armed forces. When competing against Microsoft this was often the case of smaller companies. But Sun Tzu would argue in such circumstances that it is imperative for the army with smaller forces to change the battle field to its advantage. When competing against Microsoft it was a mistake to offer packaged software and license agreements, because you can argue who invented it, but make no mistake Microsoft owns it.
Google was interesting in that they were not the first search engine company, there had been many (Yahoo, Alta Vista, Lycos etc..). Started by a couple young men Larry Page and Sergey Brin, they stumbled upon something unique. Yes they had the kick ass algorithm that made search fast and provided useful information. However, what really set them apart was the ad generated business model where Google was paid for ads based on key word searches. It was a way to monetize their internet search engine and as will be discussed it has been succesful, very successful. It was a new business model, in fact a new battle field.
The Google mission statement is brilliant “to organize the world’s information and make it universally accessible and useful”. As I said about Microsoft’s original mission statement, Google’s does the same, it lays out what the company wants to do without really stating what it is the company does. Google writes software to do search , you would not know that from the mission statement, but it is implied.
The simple combination if an ad driven business model and a concise mission statement has allowed Google to fund further software development, in a way you could say it is an indirect business model. Where Microsoft provides bundled software to create more software , Google uses its ad driven revenues to fund further software development. In short, back to our friend Sun Tzu, they changed the playing field.
When asked if Microsoft has made any mistakes I heard repeatedly from SteveB and Billg, “we really blew it in search”. Ray Ozzie shortly after joining Microsoft from Groove stated in his first “visionary” paper how the industry was now developing this indirect ad driven revenue model and Microsoft needed to do that as well. As much as I heard this I always felt then as I do now, Microsoft would never have figured this out on their own. It is the challenge many companies face when they have a cash cow as part of a stable financial diet Microsoft was making billions on Office and Windows through their traditional channels of packaged software and OEM agreements. It’s very hard to think outside of the box when you are making lots of money. There were efforts but even things like Service Provider License Agreements and hosted product offerings were not done with full corporate backing, but were hidden for small groups to build into something big, which took a long time and usually never materialized.
Today Google stands at revenues of $23.6 billion with Net Profits of $6.5 billion as of the end of 2009. For a company that incorporated in 1998 that is very impressive. When I first joined Microsoft in 1991 we were just beginning to start uttering the word billion, which was in the 16th year of the company. In the internet age I often think in terms if the velocity of business. What I mean by this is simply laid out by the definition of velocity. In physics velocity means the rate of change of position. Going from a small tech startup to technology power within 10 years would be a prime definition of the velocity of business.
Looking forward Google has laid the groundwork for future success. The acquisition of YouTube, though at the time in some technology quarters was looked down upon, in time I think will be proven brilliant. There is no question in mind the future of search will be closely tied to video, Today we get decent broadband streaming services but with the advent of 100gb networks this is only going to get better, much better. Once again the ability to tie ad revenues to video services will be key to driving growth. Today I think everyone gets a clip or two a day of funny videos, sports highlights (did anyone see Lionel Messi’s four goals yesterday?), movie clips etc…In the not too distant future we will have houses full of monitors all capable of streaming what ever video content we want. Google see’s this future and wants to own it.
There is another aspect of Google which is targeting the web developer. Today 70% of all development is targeting the web. Google hired former Microsoft exec Vic Gundrota to help drive developer audience efforts. I had seen Vic speak a number of times while at Microsoft. He is a visionary guy with a flair for “dramatic” presentations. Sometimes a bit corny, but always interesting. Google is borrowing a bit from Microsoft by creating a partner channel and encouraging developers to use Google’s tools and write applications for Android and Chrome. Android is about mobility but Chrome to me is the more interesting technology play. Anyone who wants to write software these days and make money is targeting the web. This is not rocket science. At Microsoft three years ago I was watching yet another exciting Microsoft “rah rah” video in Las Vegas, when the lovely lady on-screen said, “do you know 80% of all activity on the desktop today is on the web?”. You don’t say. Microsoft has a lot of smart people, but sometimes I did wonder. Maybe it was rocket science. Chrome was a browser. Yes another one. What it is and will become over time is an internet development platform. From a developer standpoint you won’t be as dependent on Windows API’s for writing your applications and because it’s in the browser you can run whatever underlying OS that you want. The naysayers can say what they want but it is the smart thing for Google to do. At Microsoft the PR you receive is the standard “why would developers do this?” . Why does Google support multiple OS’s, like Android and Chrome, it will never work (at one point Microsoft had Windows and NT, but that is another story). But if you look at what is being talked about there is a lot of discussion around the features in the upcoming release of Internet Explorer 9 as for the next release of Windows..not a word. As a former Microsoft employee my fear is once again Microsoft is following and not leading. Maybe in the end Windows will just be a buggy set of device drivers?
Since I left Microsoft I have tried other technologies on the web, one being setting up a gMail account. Google’s gMail has been a huge success and it seems like most people setting up their internet mail accounts seem to gravitate towards gMail. It used to be people used Hotmail. Someone sent me a word document as an attachment and gMail in its wisdom said I could open the document using Google Docs. I tried it and it worked flawlessly. This gets to a final discussion on changing the playing field as well as using your competitors playbook. Google is using its ad revenues to fund other software projects. In this case targeting one that would compete directly with Microsoft’s great cash cow Office. By allowing users to read Microsoft Word docs they borrow from what Microsoft was doing when I first joined in 1991, which was provide Microsoft Word users the ability to read WordPerfect and WordStar documents. If you want users to migrate off an existing application make it easy for them to do so.
Looking forward Microsoft has done some very good things, there Bing search engine caused an immediate response from Larry Page and Sergey Brin, to study the new search, it’s a good thing to get your competitors to react once in a while. Microsoft is also trying to get an online version of Office. One of the great challenges for any company with the assets like Microsoft is to change with the industry while keeping shareholders happy. However as a whole it looks like rather than take the fight to Google it waits to see what Google is going and then reacts to it.
I said earlier video is going to play an even larger part in ad driven revenues moving forward. One of the technologies Microsoft has been touting is Silverlight, the Adobe Flash killer (YouTube supports Flash). I have used Silverlight and it is easy to work and seems to work very well, but to be really successful it needs to be translated into ad revenues for Bing. Microsoft is a very good technical company but with so many business it competes against itself internally and fails to capitalize on opportunities. Billg said the key to Microsoft’s future success is “integrated innovation”. It is the integrated piece that is sorely lacking. However if Microsoft can stop acting like the US Congress the opportunity to lead as a technical leader and not a financial leader is before them. One of the original Apple employees and Silicon Valley legend Guy Kawasaki was speaking to a group of venture capitalists in the valley and he made the point to the audience, “don’t focus so much on if your investment will make money, but focus on the technical innovation and enthusiasm of what your investing in, making money is implied”. Microsoft would be wise to head these words. There was a time when it did. I think under the guise of Satya Nadella it is starting to wake again.