As Microsoft and Yahoo continue with their interminable modern-dress staging of Hamlet – it’s longer than Branagh’s version! – the transformation of the software business goes on. We have new players with new strategies, or at least interesting new takes on old strategies.
One of the cornerstones of Microsoft’s competitive strategy over the years has been to redefine competitors’ products as features of its own products. Whenever some upstart PC software company started to get traction with a new application – the Netscape browser is the most famous example – Microsoft would incorporate a version of the application into its Office suite or Windows operating system, eroding the market for the application as a standalone product and starving its rival of economic oxygen (ie, cash). It was an effective strategy as well as a controversial one.
Now, though, the tables may be turning. Google is trying to pull a Microsoft on Microsoft by redefining core personal-productivity applications – calendars. word processing, spreadsheets, etc. – as features embedded in other products. There’s a twist, though. Rather than just incorporating the applications as features in its own products, Google is offering them up to other companies, particularly big IT vendors, to incorporate as features in their products.
We saw this strategy at work in the recent announcement that Google Apps would be incorporated into Salesforce.com’s web applications (as well as the applications being built by others on the Salesforce platform). And we see it, at least in outline, in the tightening partnership between Google and IT behemoth IBM. Eric Schmidt, Google’s CEO, and Sam Palmisano, IBM’s CEO, touted the partnership yesterday in a joint appearance at a big IBM event. “IBM is one of the key planks of our strategy; otherwise we couldn’t reach enterprise customers,” Schmidt said. Dan Farber glosses:
As more companies look for Web-based tools, mashups, and standard applications, such as word processors, Google stands to benefit … While IBM isn’t selling directly for Google in the enterprise, IBM’s software division and business partners are integrating Google applications and widgets into custom software solutions based on IBM’s development framework. The “business context” is the secret of the Google and IBM collaboration, Schmidt said. Embedding Google Gadgets in business applications, that can work on any device, is a common theme for both Google and IBM.
Google’s advantage here doesn’t just lie in the fact that it is ahead of Microsoft in deploying Web-based substitutes for Office applications. Microsoft can – and likely will – neutralize much of that early-mover advantage by offering its own Web-based versions of its Office apps. Its slowness in rolling out full-fledged web apps is deliberate; it doesn’t see Google Apps, or similar online offerings from other companies, as an immediate threat to its Office franchise, and it wants to avoid, for as long as possible, cannibalizing sales of the highly profitable installed versions of Office.
No, Google’s main advantage is simply that it isn’t Microsoft. Microsoft is a much bigger threat to most traditional IT vendors than is Google, so they are much more likely to incorporate Google Apps into their own products than to team up with Microsoft for that purpose. (SAP is an exception, as it has worked with Microsoft, through the Duet initiative, to blend Office applications into its enterprise systems. That program, though, lies well outside the cloud.) Undermining the hegemony of Microsoft Office is a shared goal of many IT suppliers, and they are happy to team up to further that goal. As Salesforce CEO Marc Benioff pithily put it in announcing the Google Apps tie-up, “The enemy of my enemy is my friend, so that makes Google my best friend.”
Like Microsoft, Google is patient in pursuing its strategy. (That’s what very high levels of profitability will do for you.) It knows that, should traditional personal-productivity apps become commonplace features of the cloud, supplied free or at a very low price, the economic oxygen will slowly be sucked out of the Office business. That doesn’t necessarily mean that customers will abandon Microsoft’s apps; it just means that Microsoft won’t be able to make much money from them anymore. Microsoft may eventually win the battle for online Office applications, but the victory is likely to be a pyrrhic one.
Of course, there are some long-run risks for other IT vendors in promoting Google Apps, particularly for IBM. A shift to cheap Web apps for messaging and collaboration poses a threat to IBM’s Notes franchise as well as to Microsoft’s Office franchise. “The enemy of my enemy is my friend.” If I remember correctly, that’s what the US government used to say about Saddam Hussein.