Last week, I wrote a deliberately provocative commentary, Kickin' It In The Cloud, in which I described how Google's cloud computing mindshare vastly outperforms the company's cloud computing revenues. Put more succinctly, close to 99 percent of the almost $24 billion in revenues Google posted in 2009 is tied directly to advertising revenue on search results. This makes complaints about Microsoft's inability to expand beyond its core products seems somewhat humorous by comparison.
Last week's realty check shouldn't obscure one simple fact, however. The future of computing is very clearly in the cloud--just ask Microsoft CEO Steve Ballmer, who spent last week explaining that to the nation's top CEOs. And though Google has yet to establish a financially successful cloud computing product to rival the software dynasties Microsoft owns, its advertising revenues are hefty enough to finance numerous projects for decades to come. Like the Microsoft of 15 years ago, Google can keep trying and trying until it establishes a beachhead, all while keeping less well-funded competitors at bay. And my expectation is that, left unchecked, it will be successful at doing so.
Not coincidentally, Google this past week held its third annual Google I/O conference, a developer-oriented show that, like Microsoft's PDC (Professional Developers Conference) and Apple's WWDC (Worldwide Developers Conference), provides a revealing glimpse at where the company's platforms are heading. This show was fascinating for a number of reasons, but for me it provided an interesting look at how Google views the world, and how its competitors--Microsoft among them--can hope to beat back this seemingly unstoppable force.
Here are the major business oriented product and technology announcements Google made during this show, and how I feel Microsoft is positioned from a competitive standpoint.
Since its products are essentially all web-based, Google makes a big deal out of the open nature of the technologies underlying these products. And to its credit, Google does open source many of its own technologies as well, effectively losing control of them in the process. That said, the proprietary vs. open source debate has been done to death, and it's as hard to imagine a world of only open source technologies as it is to imagine the reverse. Point being that proprietary and open source technologies will continue to coexist going forward. And you know, even Google gets that, though they don't point it out very often. And I don't recall Google open sourcing its advertising engine. Just a thought.
In a bid to position Google as the future, Google vice president of engineering Vic Gundotra--a former Microsoft executive, by the way--noted that "the web is the most important platform of our generation." The aim here was also to position Microsoft as the past. But come on, there's no reason Microsoft can't extend its traditional software product lines successfully to the cloud. And I'd argue that decades of experience in that market will only help it as it moves ahead to yet another platform. Google's occasional support of open source isn't going to prevent that.
[ Read more about Google's use of open standards. ]
Google won some points in the I/O keynote by pointing out that, even with IE 9, Microsoft's support of web standards dramatically trailed all of the competition. Microsoft's hope, of course, is that the continued success of its desktop products will render that fact less damaging.
Google, meanwhile, is claiming that all meaningful software development since 2004 has occurred on the web, and not on traditional PC platforms like Windows. I suspect it really meant all meaningful "new" software development, since new versions of products like Microsoft Office and Adobe Flash continue to be hugely successful and are installed on hundreds of millions of PCs. But the point is valid enough. And web apps based on the emerging HTML 5 standard are an important focus for all major platform makers, including Microsoft.
One advantage that Google has here is that virtually all of its applications are, in fact, web applications. So it behooves the company to update them rapidly with support for new web technologies and while doing so, its gaining valuable experience about how these web apps perform and scale. Microsoft, meanwhile, has cash cows to protect. And it's most innovative work--I'm thinking of Windows Phone 7 here--is occurring only in those markets where the previous product failed, so there's no reason to carry it forward. I've said it before, but Microsoft is going to need to adopt this mindset for all of its product lines if it intends to remain dominant in the coming generation of web apps.
[ Read more about Google's use of HTML 5. ]
Google announced that it would open source and freely license a video codec called VP8, positioning it as an alternative to the expensive and complicated H.264 pseudo-standard. Critics--i.e. H.264 backers--note that VP8 isn't as high quality as H.264, and they may have a point. But it won't matter. For mobile devices and You Tube-type web video, VP8 looks just fine. Murkier is the intellectual property concerns around VP8, and since Google isn't offering indemnity against IP lawsuits, Microsoft will support VP8, but not include it with IE 9. This is the right decision, unless and until Google offers indemnity. (IE 9 will include H.264 video support, as Microsoft is paying for that license.)
Apple's iPhone is such a phenomenon that few people recall that what makes it so successful--that wonderful app store with its 200,000 third party apps--was originally not part of the plan. In fact, Apple wanted to severely limit developers interested in the iPhone and provide them with access to mobile web apps only. After much public criticism and outcry, Apple relented and opened up the iPhone to developers and unleashed its app store.
Unintentional or not, Apple's success with the app store means that every top-tier mobile platform needs such a store, and Google's version, Android Marketplace, has been quite successful, with over 60,000 apps. Building off of this success, Google is opening a Chrome Web Store that will provide similar functionally for web applications running in Google's browser, Chrome, and its upcoming netbook/cloud OS, Chrome OS.
Alternatively obvious and genius, the Chrome Web Store makes sense because it's currently hard for users to find high quality web apps. There's no central place to browse reviews and ratings, find popular web apps, or interact with others who use the same solutions.
From Microsoft's perspective, the problem with Chrome Web Store is that it's Chrome focused. The apps will run in other modern browsers, of course, but the experience is far more complete on Google's products. Opening its own store won't really solve the problem, and of course, Microsoft's own online marketplaces have seen little success, with the exception of the consumer oriented Xbox Marketplace. That doesn't mean that Google's store will take off, but give them credit for filling a need.
[ Read more about the Chrome Web Store. ]
Google's Android has done what many thought impossible: It's unseated the iPhone as the number two selling smart phone platform in the US (after RIM) and will soon displace the iPhone worldwide as well. There are a number of reasons for this success, but a simplified view is that Google has simply taken the best parts of each major smart phone platform and created its own open and free alternative.
Looking ahead to the next major update, Android 2.2, it's pretty clear that Google aims to extend its lead and, over time, position Android as the dominant platform in the mobile space. And Android 2.2 hits Microsoft squarely in its one remaining successful mobile markets, the enterprise. It will adopt a number of Exchange compatibility features, including remote wipe, auto-discovery, global address book lookup and security policy support, device administration APIs, and more. Android already supports multiple Exchange accounts.
[ Read more about Android 2.2. ]
For its part, Microsoft is rebooting its mobile phone efforts with Windows Phone. And while I feel that this upcoming entry is innovative and exciting, success is not assured. Looking ahead, I think that Android will be the dominant player in this market and that the remainder will be split in some way by RIM, Apple, Microsoft, and perhaps one other player. Microsoft's biggest advantage in this future is that Windows Phone will offer the best integration across the PC, consumer-oriented products like Xbox and Zune, and its various online services. That will prove a big draw for some users, but not others, especially the younger crowd that is growing up on free Google services.
Microsoft calls its strategy "three screens and a cloud" but it's so poorly realized in today's products and services that I've renamed it to "three screams and a clod" because there's nothing more disheartening that adopting a particular Microsoft solution and discovering that the company didn't go the distance to integrate it with its other products. In the fast moving world of cloud computing, Microsoft will need to adopt at least one aspect of Google's strategy, and that is to iterate early and often. The company still doesn't get this--it's been a year and a half since the last Windows Live release, which is ridiculous. And until it does, it will continue to lose mindshare--and then usage share and market share--to faster moving companies like Google.
This, of course, is the real danger of Google's market power, both to Microsoft and to the companies that rely on its technology solutions.
--Paul Thurrott
May 25, 2010