Ok I know right now this is no contest. Microsoft Office 2010 is a huge success in the 4-5 billion range per quarter and it is the ultimate cash cow. Anyone in business school would probably call Microsoft Office the definition of cash cow. They would be correct in doing so. Over the past couple of years we have seen a new competitor come to the market in the form of Google Docs. Competition to Microsoft is nothing new. It has been tried many times before. But I am seeing things a little differently with regards to Google Docs than I have in the past. My son does his home work using Google Docs. At my current place of work when we order out for food we place our orders through Google Docs. A lot of start-ups choose to use Google Docs in order to cut costs. These are things that just did not happen in the past So what has changed and what is going on in the industry? Lets look back and take a look.
When I started at Microsoft the competition was WordPerfect and Lotus 123. Those two products feature wise were considered better than the Microsoft alternative Word and Excel. But some bright people at Microsoft got an idea. Not so much a technology idea but a marketing vision. Let’s create a bundle of products targeting the office space. And so Word, Excel and PowerPoint become the first bundled suite of office productivity tools. As a customer service rep it made for an easy sale as when customers asked a bunch of questions about products and were looking for both a word processor and spreadsheet application I could just say buy the bundle with presentation software and get 3 for the price of 2. It was not so much sales as common sense. Over time Microsoft would standardize the interface between the applications, standardize the macro language, make it easy to cut and paste between applications add a database, Microsoft Access and many more over time. Before the competition knew what hit them Microsoft Office was pulling in billions in profits.
This is not to say over time there were not efforts to provide an alternate to Microsoft Office. There were. Borland struck up a partnership with WordPerfect and they combined assets to create a bundled alternative. But there was no standardization of the interface and no integration. It was a rather weak effort. Then they sold assets to Corel, a Canadian based outfit. Now everything was under one house and they were going to capitalize on the open-source craze that was catching fire in the DotCom bubble. When the bubble popped you never heard of Corel Office anymore. Then of course there were open source efforts like StarOffice, out of Germany. This was acquired by Sun who was acquired by Oracle and eventually everything transitioned over to OpenOffice.org. This has received more traction than other competitors but remains relatively small Like many open source communities, its audience tends to be very technical and anti-Microsoft. The problem is they just cannot relate to real people. Sales and marketing has a place in the product feedback loop.
Google Docs represents a new form of competitor. There are a few things that make this a different and much stronger competitor. From a technical stand point it is a cloud based application. It just requires an account, no set up. It provides 90% of what users need, which is primarily the ability to type and format. Second, Google is an established company with lots of cash at its disposal. It can continue to invest in product development and do the necessary marketing it will take to be an effective competitor. If it takes ten years to get 10% market share they have the ability to wait that long. Any company in the Office Productivity space who were to get 10% market share would inflict significant pain on Microsoft and specifically its share holders. Finally there is the current Generation Y or whatever label you want to give them, but they grew up with technology. They are not intimidated. They are not beholden to any one company. The idea of cloud based apps makes no difference to them. In this “i” everything society they are quite comfortable with a SmartPhone, Tablet, Laptop etc..Breaking free from Microsoft Office is not that hard.
Which brings me back to my opening statements, which in short states that a lot of people are familiar with and are using Google Docs today. The other competitors mentioned, you would find it hard to find people who know what they are or what they do. With Google Docs anyone who has a gMail account has access to Google Docs. The days when you receive a document and automatically you open Word for Windows, is no longer the case (this sometimes creates its own source of headaches for older people such as myself). Google has done a great job leveraging its name to drive new services to customers. They are gaining familiarity in the home as kids bring new technology home and then the next thing you know PTA members are sending you Google Docs. To be successful in technology you need to go viral.
Down the road you can begin to see chinks in the Microsoft Office armor. Everyone who uses Excel or Word say the same thing, “I only use about 10% of its capability”. Which is true, it has become so big and bloated that a streamlined word processor like Google Docs has an opening it can penetrate. Any College student working on a mid-term paper would appreciate the ease of use and set up of Google Docs, not to mention the cost savings. College students are poor. Anything to save money and buy beer. I see Google taking an Apple approach and penetrating the educational system. The current economic climate only helps their cause. It seems not a day goes by without a state or city announcing major budget cuts to education. Every crisis kills someone but is an opportunity for someone else.
These are interesting times in technology as fundamental change in computing technology seems to be in the air. It is a time for disruption. Disruptive technologies change the industry climate. Certainly the advent of the affordable PC changed how we viewed technology. The internet created a connected society. Mobility allowed us freedom. The cloud could threaten entrenched players, who thought their business model was a birthright. Google seems to have jumped on this disruption early and it will be interesting to see if the Office folks can catch up. They are trying with Office 365. So far the only disruption they have caused is how I view a Word doc in Hotmail. That would be disruption in a non flattering way. The future is happening now. Will it still be a business of billions of dollars or is disruption going to cause fundamental shift in revenue (someone is making money, just possibly not in the traditional sense). Change is starting to happen in a fundamental way in traditional technology business categories. The Office productivity suite will not resemble what we have today in 10 years, that is for certain. It may be Microsoft Office, it may be Google Docs, it may be someone else.
Good Night and Good Luck
Hans Henrik Hoffmann October 25, 2011