Last July, I wrote about Google’s goal: Sink Microsoft by deploying Cloud-based Google Apps and, as a result, destroy the Microsoft Office money machine. Today, we’ll take another look at Google’s strategy and at Microsoft’s response with its just released Office 2010 which combines desktop and on-line apps.
First, the Cloud Gospel according to Google. Desktop bloatware is passé. Modern browsers can perform a magic trick: We, Google, maintain the applications on our servers, and we store your data as well—securely, trust us. For you, the experience is desktop-like. Word processing without Word. Spreadsheets without Excel. With one login and password, you can access your documents, create presentations, edit financials from any computer in the world that has an Internet connection.
If you’re on an airplane and want to edit your killer Board of Directors pitch, we’ll provide a local version of your files stored in what is technically called a cache inside your computer. You edit your slides and everything updates and re-syncs when you land and recover a Net connection. You have the best of both worlds: dual off-line/on-line modes. The magic relies on modern operating system, browser, and server technologies. The vast computing and storage power in today’s laptop does the rest.
To summarize: Take a laptop with a modern browser and you’re done. Everything–applications and data–resides in the Cloud. On-line or off-line doesn’t matter. It’s automagically synced.
Since it has no legacy business to protect, Google can offer free versions of its Web Apps. (As we’ll see later, they also offer paid-for versions.) Kill the $300-a-DVD Office Golden Goose and someday, my Son, all this will be yours: 1 billion users at $100/year…that’s a nice $100B/year service business. If you think I exaggerate, you’re right, but by how much? Facebook will have 500 million users sometime this year. The Google vs. Microsoft battle will play out over a decade or more. As a time perspective, Google will soon be twelve years old.
In the meantime, Microsoft isn’t asleep at the switch and they do have a huge legacy to protect. Last year, Microsoft’s total sales were $58B, down 3% from 2008.
(Numbers geeks can find Microsoft’s full 2009 Annual Report here. Note the Operating Profit, 35%. The company spends 15% of its revenue in R&D and 28% in Sales, Marketing and General Administration. Compare this to Apple’s 29.5% Operating Profit, 3% R&D, and 9% SG&A, with a comparable revenue level, in the $50B to $60B range annually. Microsoft’s Net Income is 25% of revenue, Apple’s is 22%. I used the latest available figures for both companies: FY 2009 for MS, Q1 2010 for Apple.) Microsoft Office represented 90% of the $19B Business Division sales, with a nice 64% Operating Profit:
Roughly 60% of all Microsoft’s profits come from Office and a little more than 53% from Windows OS licenses (or what MS calls its “Client” business):