Microsoft To Google: Size Does Matter - InformationWeek

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5/8/2006
02:14 PM
Alice LaPlante
Alice LaPlante
Commentary
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Microsoft To Google: Size Does Matter

Has Microsoft's corporate spam filter malfunctioned? To judge from the recent news, it might have succumbed to one of the most common, er, "offers" making the rounds of mailboxes around the world. You know the one I mean. Yes, the software giant is determined to supersize itself by building the mother of all data centers (time to buy Cisco stock),

Has Microsoft's corporate spam filter malfunctioned? To judge from the recent news, it might have succumbed to one of the most common, er, "offers" making the rounds of mailboxes around the world. You know the one I mean.

Yes, the software giant is determined to supersize itself by building the mother of all data centers (time to buy Cisco stock), dramatically upping its investment in MSN, and taking no prisoners in the launch of its new advertising initiative, AdCenter, into the already-shark-invested waters of the search advertising marketplace. Everyone agrees: All this is aimed squarely at Microsoft's new nemesis, Google.Let's review the facts: Microsoft stunned Wall Street last week by announcing that it expects to have spent approximately $6.2 billion in research and development by the end of its current fiscal year (that's June 30). And according to Reuters, analysts were told that R&D spending would increase to a whopping $7.8 billion next fiscal year. As a result, projected income is expected to drop at least 10%.

Where is all this money going? Most will be funneled into building the infrastructure necessary to support Microsoft's upcoming wholesale conversion to software-as-a-service (SaaS). But a chunk of change is going off in other directions, too. Investment in MSN will increase more than 50%, from $700 million to $1.1 billion. And at least some will be siphoned off to feed Microsoft Research, a high-powered network of R&D labs focused on emerging technologies. (And before you sniff and dismiss Microsoft Research as an exercise in academic futility, read Bill Snyder of TheStreet's commentary on how it figures in the fight with Google.)

Reaction to these vast sums has been mixed. Wall Street punished Microsoft by pummeling the stock (it dropped 11% on April 27, when the projected reduction in income was first announced). As one friend of mine said, "Microsoft could do more good burning all that money--at least it would help alleviate the energy crisis." But other commentators welcomed the news of the increased investment. CRN's Robert Faletra had an interesting take on the brouhaha, saying anyone with a long-term view of the company could only applaud Microsoft's initiative. He points out--quite rightly--that as rival products to Microsoft's flagship Office suite become more readily available over the Web (the fact that Google recently purchased Writerly, a Web-based word processor, provides a case in point), Microsoft has to investigate sources of revenue other than licensing. It's that simple.

There's no doubt, either, that both firms have the cash reserves to throw money into the ring. (Microsoft has a mind-bending $35 billion; Google has about $10 billion--nothing to sneeze at.) But is this really about money?

The question comes down to, will Microsoft out-Microsoft Google? Or will Google out-Google Microsoft? No, I'm not just trying to be clever. Despite the tech industry's awkward habit of making verbs out of nouns, these are two valid questions. In the end, it's not about money. It's about culture.

Try this exercise:

1) List all the things that Microsoft has invented. I think you'll find it's hard, even impossible, to think of anything. Copied, oh yes. Improved upon, yes (sometimes brilliantly). But actual hard-core innovation? It's just not in Microsoft's DNA. Microsoft's hallmark? An inexorable, glacier-like grinding of competitors to dust. Fierce competitiveness. Also ruthlessness. Not necessarily admirable. But (until now) very very effective.

2) Now think of what Google has invented. Better grab a pencil--you probably won't be able to remember all the things you'll come up with. Those folks in Mountain View can really jam. And although Google's vulnerabilities have been examined through a variety of microscopes, the company's sheer creativity and passion for innovation--as quirky as they seem sometimes--are never in question.

In my mind, the question comes down to, can Microsoft copy its way out of its current competitive challenge? Will brute force prevail? Or is some fundamental change required in the way it operates? To quote Bill Gates himself: "Success is a lousy teacher. It seduces smart people into thinking they can't lose."

What do you think? Let me know by providing feedback here.

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