Microsoft VS. Google: A Battle Of Epic Proportions

Brian Clionsky
updated | Author's Website

On the surface Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG) do not seem to have too much in common. Microsoft is the world’s number one software company that has expanded into other markets such as video game consoles, server and storage software, and digital music players. Google on the other hand is The Internet. Google is the leading Internet search engine, deriving almost all of its revenue through online advertising. Microsoft has seen the potential in this online space and has begun to make a push at competing with Google. The competition has really started to get “bloody” and we’ve seen Microsoft and Google go head to head on many different occasions, including a struggle with Yahoo (NASDAQ:YHOO) and Microsoft’s more recent “theft” of a Verizon Wireless (NYSE:VZ) contract for Internet searching on Verizon’s cellular-phone network. With the current economy in doubt, there is no telling what either company may do to attempt to gain market share and avoid posting “lack-luster” earnings so this battle should get more interesting and more with time. It appears that in the past Microsoft has been the aggressor but there is only one thing for certain in the future; this battle is going to get good. I’m going to take a deeper look at this conflict and who’s currently “winning” the strategic battle for control of the Internet and IT world.

Internet Search Market

Google is the clear favorite when it comes to the Internet Search Market. Google controls roughly 60% of the market followed by Yahoo with close to 18% and Microsoft’s Live Search with about 13%. Google has seemed to master the realm of online search and paid-per-click advertising, something Microsoft has always had trouble doing. However, as of late we have seen a big push by Microsoft to gain a bigger market share in the Internet Search Market as Microsoft understands the revenue generating capabilities of the Internet and recognizes the current IT trend/movement toward the cloud. Microsoft has resorted to gimmicks such as paying users to search using Live Search and during the end of 2008 was giving a 20% rebate for buying products from certain retailers from its Live Search. This paid-to-search strategy didn’t really catch on nor did it help Microsoft gain much market share from the Internet search giant. Ultimately it comes down to Google’s algorithms/technology behind its Internet search, which reigns supreme in the industry. Microsoft was the original innovator in this field with its Keywords technology but dropped the technology and lessened its pursuit of the Internet search market to focus on other business segments. It would appear now that this was an awful move by Microsoft and something they will inevitably regret, as Google will continue to dominate online searching/paid-per-click advertising well into the future.

Google 1 Microsoft 0

Internet Browser / Search Market

It’s obvious Microsoft leads the way when it comes to the Internet browser market. Internet Explorer controls about 70% of the United States Browser market, well ahead of its closest browser competitor, Mozilla Firefox, which controls about 20% of this market. Firefox gained this 20% of the market very fast as its Internet browser was “cutting edge” so to speak and contained many user-friendly options/features that Internet Explorer lacked. Microsoft saw its market share deteriorating and “borrowed” some of Firefox’s innovative features. Internet Explorer version 7 seemed to mirror many of these unique Firefox features, which helped Mozilla capture a lot of their market share from Microsoft. These features include the addition of a new tab/window option along with some of the unique Internet security features of Firefox. Clearly Firefox was better than Internet Explorer 6, but the differences between Firefox and IE7 are very minimal due to this “borrowing” of features.

Beyond Internet Explorer and Firefox, there isn’t much of the market left, but Google has taken a splash at this market and released its own web browser, Chrome. Chrome can be described as more of an operating system than an Internet browser. Chrome is very smooth and comes with many very unique/user friendly controls that both Internet Explorer and Firefox lack. Google’s Chrome leads the way when it comes to browsers preparing for the next shift in IT, cloud computing.

Basically the Internet will eventually become the “operating system” and Google is already positioning itself very nicely for this shift. Chrome captured a good chunk of the market in the short time since its been released. Chrome appears to be the innovative and “fresh” browser. Chrome will open the door for cloud computing and the use of the Internet as an operating system. Chrome will also thrive off of open source developing. If Microsoft wishes to keep its hold on the Web Browser market it is very likely that it may have to “borrow” some of the features from Google’s Chrome in its next release, just as it did with Firefox and IE7. This however may play right into Google’s game of Chess.

Google’s business is the Internet. If Microsoft allows for further development of a browser that feels more like an operating system it paves the way for Google to capitalize and generate revenue off of the Internet, playing right into Google’s strategy of centralizing computing around the Internet.  It appears as if Google was simply planting the “virus” with Chrome and really doesn’t care to own that much of the market but would rather have Microsoft “borrow” some of its features and then capitalize on the result.

As a user of all three web browsers, Internet Explorer, Chrome, and Firefox, I must say that I prefer Firefox but the freedom that Chrome gives its user is unmatched and makes Internet browsing faster, more fun, and gives the user more control. It will be interesting to see what the full version of IE8 looks like and what “new” features are borrowed from its competitors.

I give the point to Google on this one as they have everything to gain, while Microsoft has everything to lose. Also, many governments/the EU feel that Microsoft holds a monopoly and doesn’t give any other Internet browser a shot, packing IE with its operating system. The EU’s most recent wrist slapping could potentially help open the door for Chrome and Firefox to really gain some market share, at least internationally. Google seems to have the “bait” in place but only time will tell if Microsoft will bite.

Google 2 Microsoft 0

Please join me on Saturday, February 7th for the second part of this three part series.

Disclosure: The mutual fund the author manages is long GOOG , T and MSFT.

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