Will Google destroy Microsoft?

In Google's first decade online, Google and Microsoft didn't seem to be the kind of companies that would compete directly with each other. Google's main product is an Internet search engine and the company's revenue comes from ad sales. Microsoft's main products are an operating system, office productivity suite and other software. Where's the conflict?

Today, there are several points where Microsoft and Google cross paths. The two have taken each other on in their native product categories, and expanded into new markets as well.

Microsoft's direct competitor attempt is a search engine called Bing. Microsoft launched Bing in 2009 as a step above its Live Search and MSN search engines. Its features are similar in look, feel, and function to Google's search. It hasn't boomed in the marketplace yet, though: As of February 2010, Nielsen reported that Microsoft search engines (Bing, Live Search, and MSN) all shared a mere 12.5 percent of online searches, nowhere near Google's whopping 65 percent [source: Nielsen]. It's still not close, even if you add in Microsoft's new 10-year search engine partner Yahoo, at 14 percent.

Google has made an attempt to compete with Microsoft's Office software suite with its Web-based productivity software called Google Docs. Google Docs includes a word processor, spreadsheet application, slideshow presentation maker, and even a form builder and drawing tools, all with the portability of access from any Web browser. It also makes it easy to collaborate with others on a project, with the ability for both users to edit the same document, even at the same time. Google Docs is not as robust and feature-rich as Microsoft Office software, though, and depends on Google for privacy and availability.

Microsoft fired back at Google with Office Live Workspace (OLW), free online collaboration versions of its Microsoft Office products. OLW readily works with files in proprietary Microsoft Office formats for documents, spreadsheets, and presentations. Plus, the SkyDrive gives you 25 GB of space in which to store files [source: Microsoft]. But Microsoft didn't just put OLW together overnight; it leveraged the power of its well-established (though costly) SharePoint software to create the new free Web service [source: Foley].

Both Google and Microsoft have mobile operating system platforms. Yet neither company is close to overtaking the iPhone from Apple, which has close to 60 percent of the market [source: Quantcast]. However, Google Android is also growing rapidly, and it already has twice the share of Windows Mobile [source: Net Applications]. Will Windows Mobile survive? Microsoft is cleverly looking past Android and taking aim directly at the iPhone in promoting its Windows Phone 7, to be released in late 2010.

Besides the mobile platforms, both Google and Microsoft offer Web-based e-mail platforms. Both are investing millions of dollars into cloud computing solutions. And both recognize the growing importance of the Internet for the average consumer. Google may have an advantage over Microsoft because it's a Web-based company; however, Microsoft has decades of experience in application development and consumer research. Let's look at some of the strengths and weaknesses of each company.

One advantage Google may have over Microsoft is public perception. Part of Google's philosophy is "you can make money without doing evil" [source: Google]. Google has built a reputation on innovation and customer service. The company's headquarters -- the Googleplex -- is famous for its unique amenities and offices.

Microsoft had a similar reputation. But after years of dominating the operating system marketplace, Microsoft has become the establishment. Microsoft has received brutal criticism for some of its releases over the years, including problems with stability, security and compatibility. Windows ME and Windows Vista both made bad first impressions. Though Microsoft released patches to address many of those problems, many people had already decided to avoid them. Fortunately for Microsoft, it's retained some respect with releases that have left a more positive impression, like Windows XP and Windows 7.

Google's position on the Web is solid. According to the analysis firm Efficient Frontier, Google held 75 percent of the search engine advertisement market in first quarter 2010. Gmail, Google's Web-based e-mail shows steady growth, up 27 percent from 2009 to 2010, while the reigning Yahoo Mail is losing ground [source: Saint and Angelova]. In addition to its search engine, Google offers consumers online productivity software, video and photo sharing services and mapping applications. Google has worked its way into the OS market with its mobile platform Android and its Web-based OS project Chromium. However, it doesn't produce many desktop applications that can stand alone without Internet connectivity.

Microsoft has a much stronger hold on the desktop application market. Beside the Windows OS, Microsoft produces the Office suite of productivity software, software for computer servers and the Web browser Internet Explorer. Another important Microsoft product is its line of Xbox consoles and games. The video game market is one area of strength for Microsoft that Google has yet to touch.

If consumers begin to buy inexpensive machines with limited processing power, Google will have an advantage. That's because almost all of its products are Web services. The only piece of software you need to access most of Google's services is a Web browser. As mentioned earlier, Google introduced its own Chrome browser that jumped to the third-largest market share quickly. The Chrome browser may pave the way for the Web-based Chrome OS to become a viable OS competitor.

If consumers decide that they prefer to buy the latest and greatest computer hardware, Microsoft has the advantage. Their products tend to have more features because they rely on the computer's native processing power to run. Web services tend to be less complex -- not because the computers running the applications are less powerful, but because broadband speeds aren't fast enough for an ideal consumer experience in many cases.

A key strategy for both Google and Microsoft is to seek out smaller companies that are good at creating certain products or services and then either partner with them or buy them outright. Both Google and Microsoft have made some high-profile deals that have strengthened their place in the market.

In 2005, Google purchased 15 companies for a total of $85 million. These companies ranged from an analytics start-up called Urchin to a 3-D drawing application called SketchUp [source: Google]. One of Google's largest acquisition deals was for the online advertising company DoubleClick. Google purchased DoubleClick in 2007 for $3.1 billion [source: Economic Times]. Google has also formed partnerships with companies like AOL, NBC and the DISH Network. Most of these deals focus on online or over-the-air advertising.

Microsoft purchased 22 companies even during its economic challenges in 2008-2009 [source: Microsoft]. Like Google, Microsoft looks for companies that provide products or services that complement Microsoft's core business. These companies often become the divisions in Microsoft behind products like the Xbox game console or Zune music player.

Microsoft and Google have also battled over some of the same companies, such as Yahoo. When Yahoo experienced financial problems in 2008, Microsoft made a bid to acquire it. Yahoo executives refused to sell the company for Microsoft's price, and Google swept in to make an advertising partnership deal. The U.S. government objected because the deal would give Google a monopoly on the search ad sales market. Microsoft came back in 2010, announcing that its Bing search engine would power Yahoo's search results in exchange for ad revenue. Regulators in Europe and the United States gave the Microsoft-Yahoo deal a green light with no conditions [source: Singel].

Microsoft and Google have also competed for important partnerships, such as those needed to expand their mobile platform market shares. Android mobile OS has made swift gains in the mobile OS market share, going from around 5 percent in January 2009 to 20 percent in May 2010 [source: Quantcast]. Key deals with manufacturers like Motorola along with clever advertising helped make it happen. In March 2010, Microsoft struck back with its own deal with Motorola for placing the Bing search engine on its Android phones [source: Gardner]. Meanwhile, Windows Mobile lost ground as Android moved up, and Microsoft hoped to regain that and more with the release of Windows Phone 7, slated for late 2010 [source: Oiaga].

But not everything is a competition between the two companies. Google and Microsoft joined forces to petition the Federal Communications Commission (FCC). They wanted access to the unused bands in the television frequency spectrum, known as white spaces. Google, Microsoft, HP and Motorola joined forces to create the White Spaces Database Group, which would submit new protocols that standards companies will have to follow in order to take advantage of the white spaces for wireless broadband. In November 2008, the FCC approved the request for unlicensed use of the space. Thanks to this group effort, innovation is starting to happen in the white spaces. In January 2010, the FCC designated Google as one of the administrators of a database for white space devices [source: Whitt].

It's likely that Google and Microsoft will compete even more in the future. Both companies are expanding their core businesses. Microsoft is trying to gain ground online while Google creates services that fulfill the same functions as traditional desktop software. Both companies are on the lookout for potential acquisitions and partnerships to bolster their position in the market.

Neither company is in a bad position. Both have suffered losses from the global economic decline. Both had to make sacrifices and cut jobs for the first time in their respective histories. But both are still worth several billion dollars, have recovered well from their financial setbacks and continue to develop new products and services.

Google seems to have a great deal of momentum. The company has a reputation for innovation. It's famous for giving employees 20 percent of their work week to pursue special projects. Many of these special projects end up in Google Labs, a special section on Google that allows users to experiment with new services. Eventually, these services may graduate into fully-realized products from Google.

On the other hand, many Google services seem to be stuck in beta. Beta is the industry term for products that are in a testing phase -- they aren't yet in a finalized format and users may encounter bugs or other problems while testing the product. As an example, Google introduced Gmail in 2004. It wasn't until five years later that the service finally lost its beta tag [source: Coleman]. And despite multiple attempts at diversification, Google's search engine is its only breakout financial success. According to the U.S. Securities and Exchange Commission, 97 percent of Google's revenue comes from online ads [source: SEC].

The public and corporate reaction to Windows Vista was a blow to Microsoft, though the positive response to Windows 7 has helped turn the tide. The Windows operating system is a core Microsoft product. As more people learn about cloud computing and question the value of powerful personal computers, the company must adapt to the new market environment. Products like Office Live Workspaces are a start, and Microsoft has other initiatives designed to capitalize on cloud computing, too. Microsoft is regrouping for the big comeback, and it has the resources to make it happen.

Competition continues to heat up on some fronts, but both sides are still strong, and it looks like Google won't be dealing the death blow to Microsoft any time soon.