Sunday, February 03, 2008

The New Internets: Is Microsoft Already Ahead of Google? Who Needs Yahoo!?

Google has a clear lead over Microsoft when it comes to desktop based internet search and advertising. The big pond that Google is going after to expand its market is to aim for a bigger share of the advertising pie that includes print, radio and even television advertising.

Meanwhile, Microsoft is trying to catch up with Google in search and advertising. But that is not where they can out maneuver and beat Google. This may be the reason Microsoft is targeting ubiquitous computing - the new internets that are yet to be dominated.

My Car's Internet
Americans spend a significant amount of their lives in cars commuting and picking up kids from school. Microsoft, working with Ford, is far ahead in the connected-car game. Think of it as the Microsoft Operating System for Cars.


The addition of Yahoo! to the basket of technologies and services Microsoft can offer, especially Yahoo! Go, can help Microsoft further gain leadership here. Yahoo! Maps activated by voice integrated with your car's GPS. The possibilities are endless.

My TV's Internet
After the car, we spend a significant portion of our lives vegetating in front of televisions. And even though the amount of time we spend on TV vs computers is declining - it is still significant.
Microsoft IPTV initiative, now re-branded as Microsoft Mediaroom, is a leader in this space. And Microsoft has done a tremendous job of building alliances around this. Taking a page from its Windows play book where the Dell, HP and IBM's of the world helped it become the leader, Microsoft is tieing up with partners be it global telcos like BT or regional leaders like Reliance in India.

My Game Box's Internet
So, we all know that after the initial hiccups and skepticism, XBox strategy is finally ready to pay dividends (Microsoft is expected to finally make a profit on XBox this year) - but even without the profits, it is hard to deny that XBox has captured a significant market share. Yahoo! has done well with its casual games and is a leader in the space. It would be interesting to see what synergies can be brought to bear through this alliance.

Searching for Success
So, yes search and advertising is a huge market. And Google could become the first trillion dollar market cap company according to some. By the way, where is Henry Blodget now that the Google stock growth has, how shall we say it, slowed down. I guess Henry Blodget timed it perfectly again - pretty much making the most bullish claim at the height of Google valuation - that should have been a signal to the rest of us (see my and Barron's post on the Blodget call).

Henry Blodget Timed It Again Perfectly In October
Image Source: Yahoo! Finance

Coming back to search and advertising - even if Google continues to win and maintain marketshare in search and advertising, Microsoft can win big by focusing on the new internets.

Theoretical Framework: Blue Ocean?
Although there may not be any method to this madness (the $45 billion bid), I am drawn to the blue and red ocean analogy put forward in the book, Blue Ocean Strategy. Here is a summary from Wikipedia.

Blue Ocean Strategy

The metaphor of red and blue oceans describes the market universe. Red oceans are all the industries in existence today—the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the red ocean bloody. Hence, the term red oceans.[3]

Blue oceans, in contrast, denote all the industries not in existence today—the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored. [4]

The corner-stone of Blue Ocean Strategy is 'Value Innovation'. A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company. The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market. The authors critique Michael Porter's idea that successful business are either low-cost providers or niche-players. Instead, they propose finding value that crosses conventional market segmentation and offering value and lower cost.

Clearly, search and advertising is a red ocean with existing leaders and several startups getting funded by venture capitalists. Microsoft would do much better to use both its existing assets and Yahoo! properties - to go after the new internets.

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quux said...

It is good to see that someone else has noticed that Google and MS do not have to be mortal enemies, locked in a battle to the death to own all of technology. We can only hope that Google and MS themselves come to this realization at some point!

There's one thing that has been bugging me. If MS's Yahoo buyout offer is, as many (including MS) say, about snapping up a credible market share of search/portal/mail eyeballs ... I wonder, I really do wonder, whether MS has considered getting those eyeballs another way. Like, say ... spending $20B or so on a massive advertising campaign the likes of which the world has not seen before?

Just a thought.

my miniblog

Anshu Sharma said...

I guess advertising does not work as well as advertised. ;)

On a more serious note, Microsoft's cash cows Office and Windows are increasingly threatened by Google and this is there way of fighting back.

I agree that there is room for both to grow but then we would not have this excitement.

quux said...

Hmm, I am not sure how one can see Google as a threat to Windows and Office.

I tried hard (nearly a year) to replace Office with Google Apps For Your Domain (mainly replacing Outlook, though I did use Gdocs and their spreadsheet thing as well). I failed; in 2008 I have gone back to Outlook as my main mail client (the mail itself still resides @ Gmail). I'll still keep some of my simpler docs & spreadsheets on Google. But I do not see anything resembling a threat to Linux and OpenOffice/Thunderbird at Google yet; to suggest there is any threat to MS's core business at this point seems a little odd to me.

Can you elucidate a bit?

Anshu Sharma said...

Many Lotus Notes users still use it but there is an entire generation that has never seen or used Lotus Notes. Similarly, there is a generation going to school and college that lives its life on web platforms and expects free services. Google is not looking to replace Office but subvert it by meeting the needs of under-served and un-served markets. Kids in India can hardly afford to pay $300 for a spreadsheet program when all they need is a simple tool.

So how does this hurt Microsoft? Well, if you could do 80% of what you need with a free web based tool, you would be less likely to buy a full featured product - this reduces pricing power.

This has been well written up in case studies covered in Innovator's Dilemma and other books - a disruptor that meets the needs of only the basic user over time gains marketshare, matures its offering and becomes competitive with leading solution for 90% of the market.

It may take 3, 5 or 10 years to get there. Or sooner.

quux said...

Oh, I don't doubt that someday, G's Docs & Spreadsheets could become a threat to Microsoft. What I'm saying is that right now, they really are not. Outside of us techie types, few have ever heard of them; fewer have tried them.

I should have mentioned in my prior post: I'm just one guy. I don't have any delusion that my own preferences mirror those of any significantly large group of users. But right now, there just aren't many people using Googles Docs & Spreadsheets, and even fewer are singing the praises of it as a replacement for Office.

Similarly, no one really has a credible threat to MS's operating system biz. At this time, anyway - who knows what the future will bring?

Anshu Sharma said...

Yes, Google is not a real threat yet when it comes to Office & Windows. The theme of the post was indeed to explore alternative ways of thinking about the future market.

Ian Gilyeat said...

Thinking differently about the future should entail trying to imagine the market without Microsoft in a dominant role, although not a very realistic outcome. When we think about desktop apps and how Google competes, I believe we back ourselves into a corner and compare the app to the full functionality of Office, Word, Excel, etc. Sadly, most of us use a very small fraction of what is included in the app. Perhaps Google knows something, or can learn something and maybe even deliver a SaaS solution that is delivered on demand when we need it without ever really installing a full application. The crossroads of SaaS, advertising supported SaaS and Microsoft becoming a competitor in SaaS and advertising/search (e.g. trying to become a service company) is what makes the developments of Microsoft and Google very interesting at this point in their evolutions.