Thursday, November 01, 2007

Google and Microsoft

Google seems to have perfected the art of attacking its competitors cash cows. Attacking cash cows is a good strategy for two reasons – it makes the company being attacked move to a defensive role. Once in a defensive role, you are reacting to the competitor's threats, rather than focus on adding value to the customer and others in the value chain. Second, a loss of revenues means that there is less investment available for other projects that help the company retain competitive advantage.

Google has done this often and rather successfully. First, it took on Paypal. Google Checkout's price promotions in the 2006 holiday season and throughout 2007, have led to significant adoption in the marketplace, and has forced Paypal to spend additional product development dollars or lose market share.

It has also done this with Microsoft – with GAPE (Google Applications Professional Edition), which bundles the equivalent of Office and Exchange in a SaaS solution at a price of $50/user/year. Exchange and Office costs of ownership are significantly higher.

The unchallenged competitive advantage Google has as a market maker for ads makes it possible for Google to finance these strategic initiatives.

SWOT Analysis for Microsoft



Closest to customer

Hard to convey incremental value to customer

Solid Development platform


Established ecosystem of partners

Partners capturing too much value

Lots more experience in managing value chain



Better Development Tools

Google - Office

Publisher Ad incentives

Open source - Servers

international markets

Virtualization – Can they make server OS' irrelevant?


Enterprise software

SWOT Analysis for Google




Dependent on network operators and PC OS's

Unchallenged Ad market making

Single source for revenues

Established ecosystem of publishers and advertisers

Major SEM tools integrated

Traffic cop for the internet



Mobile SEM

Can execution be sustained?

Making other advertising markets efficient

Can someone incentivize publishers to move elsewhere?

For Microsoft to retain competitive advantage and the ability to price products without significant competitive pressure, it must act to somehow dilute Google's source of revenues. As most of you already know, Google a significant portion of ad inventory where Google Ads are served is on non-Google sites. If Microsoft were able to convert these publishers to use their own version of an ad network, codenamed Gatineau, or at the very least undermine the use of the Google Adsense program (through legitimate means, of course). Microsoft can do this in 2 ways – buying a stake in publishers –like Facebook – which it has already done, offers a potential for a significant amount of ad inventory that is out of Google's hands. The second, possibly more difficult option, is to provide ads cheaper to advertisers, and pay more to publishers – and take less of a margin or no margin at all in brokering the transaction. While this doesn't help Microsoft's bottom-line directly, it helps by impede Google's ability to invest in high projects that will continue to offer it competitive advantage.

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