Why Is Microsoft Afraid of Google?

In the few short years of its existence, Google has come a long way, simultaneously striking fear in the hearts of major players in the computer industry and also arousing their curiosity.

Its search engine is so ubiquitous that “to Google” somebody or something is now part of the lexicon of hard-core knowledge workers and casual web users alike. Google also has become a gateway to the Internet and taken steps to develop desktop applications, such as Google Toolbar and Google Desktop, not to mention other products like Gmail and Google Earth. The company's initial public offering was a big success and its stock has risen ever since. What, everyone wonders, will Google be up to next?

While Google, of Mountain View, Calif., is keeping all competitors on their toes, it poses a special threat to one particular company — Microsoft. Why? Because Google's existing and potential products — as well as those of other firms — raise the specter that the behemoth of Redmond, Wash., may witness the erosion of its control over the platform for the next generation of software application development, according to Wharton faculty members who follow the technology sector.

“What Google wants to do is strategically decrease people's reliance on Microsoft. It's as simple as that,” says Wharton management professor Raphael Amit.

But being a threat — even a formidable threat — is one thing. Actually beating Microsoft would be a different accomplishment altogether, the Wharton experts agree, and only time will tell how this David-and-Goliath-style rivalry will fully shake out.

Microsoft's concern over Google has been evident recently on several fronts. Microsoft recently announced a major reorganization designed to streamline the company's huge bureaucracy and make the firm more nimble — a move that the Wharton scholars say was in direct response to fear of continued inroads made by competitors, especially Google, on Microsoft's turf. Microsoft has also suffered the embarrassment of watching key employees defect to Google. Most recently, on Oct. 4, Sun Microsystems and Google announced a partnership to distribute each other's software, a deal that is viewed as another assault on Microsoft. Among other things, the Google Toolbar for web browsers will be a standard component of the software that computer users receive when they download Sun's Java software.

But the central challenge to Microsoft goes beyond corporate reorganizations, defecting employees or the popularity of Google's search engine as a gateway to the web, according to Kendall Whitehouse, senior director of information technology at Wharton. Microsoft's success has been due in large part to its realization two decades ago that control of the operating system on personal computers would give it a great amount of leverage over PCs, he says. Most companies in the 1980s saw the operating system as a pure commodity product, but Microsoft understood that it held the keys to the kingdom.

“It's because of the dominance of the Windows operating system that Microsoft has been able to become so strong,” Whitehouse notes. “The dominance of Windows means that if you're a developer of a major software application, you need to deliver a product for Windows. This means software developers must use the programming capabilities provided by Windows — its application programming interface, or API.”

But many in the computer business have long believed that the core platform could be moved to a higher level, that technology gurus could establish a web-based platform that runs in the browser and is written in the language of the browser rather than the language of the operating system.

“This was the dream of Marc Andreessen [co-founder of browser company Netscape Communications] and others back in the mid-1990s when Andreessen boasted that the web would reduce computer operating systems to nothing more than 'a poorly debugged set of device drivers,'” Whitehouse recalls. “And this is why Microsoft responded so aggressively to the threat of Netscape after [Microsoft Chairman] Bill Gates issued his famous memo warning of an Internet 'tidal wave' that threatened Windows. Netscape didn't succeed. Microsoft managed to thwart Netscape's attempt to establish a new platform on the web.”

How, specifically, do innovations at Google threaten Microsoft? Whitehouse points, for example, to Google Maps. The API of Google Maps lets developers embed Google Maps in their own web pages using JavaScript. A visit to http://www.googlemapsmania.blogspot.com/ — which bills itself as an unofficial Google Maps blog tracking the websites, ideas and tools being influenced by Google Maps — shows a long list of applications built using Google Maps as the underlying engine.

Google is not the only company offering products and services that run on a web platform. Feeling the heat, Microsoft has already announced products to compete with those of Adobe (developer of the PDF document format) and Macromedia (developer of Flash and ShockWave software for video and animation), which announced a merger earlier this year. “To the extent that PDF and the Flash SWF file format could be an emerging platform for web application development,” Whitehouse notes, “Microsoft has to be worried.”

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