Is Office the new Netscape?

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’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.

19 thoughts on “Is Office the new Netscape?

  1. Joining Dots

    I think Microsoft is wrong in assuming that an online version of Office will cannibalize their product sales, and therefore making a mistake in being patient. The uses for Office-like tools online are proving different to offline. Well, they did until Zoho started introducing macros and programming to their suite. I covered this in ‘Rethinking Office’ –

    And Google is already facing Netscape like challenges of its own, how to maintain a profitable business model as the web moves to environments that are not so well suited to their current advertising model. And yup, wrote about that too :-) ‘Desperately seeking a new business model’ –

  2. George Geist

    Hey, don’t dis Branagh’s Hamlet. Well, okay, it is pretty long, and the “How all occasions do inform against me” scene is a bit over the top, maybe more than a bit over the top. Perhaps it has a bit of “feature bloat.” But if you look at all of the truncated Hamlets, the each cut different features.

    Every Hamlet has word wrap and “To be or not to be.” They each have a calendar tool and “A hit! A palpable hit!” But some have the ghost, some only sketch it. Some cut the opening on the castle walls, or slice up the graveside scene, or cut the ending after Hamlet’s death. But Shakespeare has been selling the full text of Hamlet as a profitable business for >400 years, even if not all buyers use all of the features.

    And that’s enough of that metaphor. But I’m not the one who brought Hamlet into it :-).

  3. Tom Lord

    Wow. I saw the headline and though “Oh, I know just what he’s going to say.” Then read. And you said almost the opposite.

    When you say “Netscape” my first thought isn’t of the company that lost through the IE play but, instead, of the company that managed to turn the good idea of “the web” into the first new, successful platform in years.

    To my eyes, the Javascript and even client-side Java environments of modern browsers are pretty good, and pretty powerful, but they aren’t very soon going to turn into a powerful enough platform to really compete against traditional client-side apps.

    Meanwhile, as “SOA” stuff becomes more common, there are a lot of emerging opportunities for traditional client-side apps to gain new functionality by using the web / cloud even while not relying on it.

    So, maybe, “apps delivered over the web” is going to have a lot of difficulty in the medium-term competing with “traditional client-side apps that use the web for collaboration, storage, etc.”.

    Is “Office the new browser?” Maybe.


  4. Phil Gilbert

    There is a fundamental difference, alluded to by ‘Joining Dots’ above. Microsoft had a “monetization-engine” in Windows… it could subsume Netscape functionality inside a cash-generating thing. And more to the point, it eliminated a competitor to the cash cow.

    Google is subsuming Office functionality and is making money on it… where?

    Any pyrrhic victory may, in fact, be Google’s.

  5. Nick Carr

    Google is subsuming Office functionality and is making money on it… where?

    Subscriptions, ads, collection of user info, and the funneling of users to Google searches (and more ads). The economics of providing these apps over the Net are very different from supplying them as packaged goods, so the direct revenues they generate can be considerably lower, particularly for a company like Google that draws in substantial revenues indirectly.

  6. Sprague Dawley


    You are making a mistake that many in the tech blogosphere make: getting caught up in PR-driven spin of “David vs. Goliath” when the issue is really “Goliath vs. Himself”. As Steve Gillmor has remarked (click my name for gratuitous blog post), the real issue is how Microsoft, as the owner of the enterprise productivity space, defines the future of office productivity. It’s their market to lose, and this is not likely. After 10 years, IBM has negligible penetration in this space. Google teaming with an also-ran is just two also-rans running a 3-legged race to nowhere.

    And as for your statement that, “Google is patient in pursuing its strategy. (That’s what very high levels of profitability will do for you.)” — I’m guessing the $40 billion takeover of Yahoo aims at reducing that profitability a more than a bit…

  7. Sam

    There’s one thing missing from the cloud versions of the office suite, from Google Apps & IBM’s versions of (Lotus Symphony) & it has to do with — yes, that magic word — interoperability.

    Yes, & its derivatives can open & save simple .doc files, but the 3 – 7 percent of files which are complex, or are affected by VBA scripts, or are part of even simple business processes make the Windows (XP) | Office platform impervious to alien apps & formats & intolerant of participation with non-Microsoft software within the process.

    The question which still remains after the diabolical ISO business we’ve just been through is, “How does a large enterprise get gracefully out of these tired old Microsoft applications & formats?” State, regional, local & national governments, and all the organizations around the world on the ODF Alliance list of supporters, for example, have been asking this question and it amounts to something like a silent social movement.

    IBM failed to answer that question when they supported Sun Microsystems in stopping meaningful development of the native format, ODF, in May of 2005 upon the ISO ratification of ODF.

    Of course the vendors do not want really fine file interoperability. The ISO ratification of OOXML this past March reflects a tacit agreement that Sun & IBM can chew the 10% crust of Microsoft’s office suite monopoly into perpetuity. Enterprise customers are here left with no play, perhaps until Win XP reaches EOL in about 2009. The signal is they need to leap into the cloud and they won’t do it until there is a way that their files — old and new — can work on old and new (i.e., shrinkwrapped and cloud) applications.

    Whoever solves this problem will gain an early advantage in the post-Office2.0 ramp into a maturing cloud.

    Microsoft, for its part, is hoping it can delay everything until it can deliver a Fat-Client PLUS Cloud environment that will enable it to leverage its desktop monopoly into dominance of Web 3.0 (which is barren of (X)HTML and scrubbed of any and all W3C standards and is composed of about 50% Flash|Flex|AIR & 50% Silverlight|.Net artifacts.

    Without Yahoo! this could be impossible to achieve in the necessary time-frame.

    When we started working on and focusing the world’s attention on the importance of the alternative XML-based file format (ODF), the way to obstruct Microsoft’s leverage into the new Internet was to create a file format that would enable the alternative office suite application,, to move in seamlessly and interfere directly with the MS Office cash cow. Sadly, Sun elected for a small share of the office suite market and a $2 billion interop deal with Microsoft instead of doing the right thing to create many new opportunities in many markets while Microsoft was in existencial crisis, if not free fall.

    Now this opportunity is gone and we’ll need to create others to balance the markets; but the interoperability problem remains where it was in 2002. It’s solution is going to be interesting.

  8. markashton

    You’re forgetting something with this comparison. It’s relatively trivial for Microsoft to create an online version of Word or Excel at least as good if not better than Google Apps. If Office is sufficiently threatened – which I don’t think it will be – then they can choose to canibalize Office themselves. I think a more likely scenario is that Microsoft will offer online versions of Word and Excel as companions to the PC versions – much like they offer Outlook Web Access as a companion to Outlook. Most companies and PC users choose to use the PC version of Outlook when they can but like to have the option to use Outlook Web Access when they have need to. Google is SOL in this respect. With Google it’s their hosted/run by Google or nothing. The irony is that compared to Google Microsoft can offer greater choice – apps running on PC’s or hosted. Use whichever you want/need based on your situation. I’d like to see Google match that.

  9. fishtoprecords

    I could be wrong, but I think most of Corporate America, which is the source of the cash cow profits at MS, doesn’t really care about the operating system. Its Office, and more specifically, interoperability of Office documents that drives the world. Back in the late 80s, WordPerfect owned word processing, even more than Lotus 123 did.

    Companies buy Windows to run Office. There is some inertia, because the corporate IT support staff are facile in Windows and Office, but I think that inertia could be overcome by a patient, well funded company like Google.

    I’m not sure that the idea of letting Google store all your business plans and contracts is an attractive idea, but in time, it will probably become accepted.

    Google apps’ big win is that they will work transparently on your iPhone and whatever next cool thing will be. I can’t imagine replacing Word on a keyboard for an iPhone, but I can’t twitter or txt either.

  10. Phil Gilbert

    I still maintain that Google has yet to figure out how to monetize this strategy. And that means they have yet to truly commit to the long term of personal productivity application development and support.

    Of course, the stand-alone versions of word processing, spreadsheets, presentation apps are ad-supported. But the point of the post is that this guerilla strategy, that is, the use of plug-ins and such, is going to upset the Office apple cart.

    But the plug-ins aren’t being monetized. So it gets back to requiring a fundamental shift in the stand-alone world from Office to Google… and that isn’t happening. So Google is entering a business that it may or may not monetize in such a way that it will be a long-term player. At some point, even Google will have to make its various businesses profitable.

    Now personal productivity application usage will shift, over time, to the cloud or some variant (certainly the data aspect). But the question is: will Google really enter that business in a responsible way? Throwing beta applications at the market for years on end is not a strategy, it’s frivolous.

    When will Google become an applications player? When it figures out how to monetize the usage of personal productivity applications in all their “cloud computing” variants. Because until then, it won’t really commit. And as of now, this is a huge loser… and not simply a loss-leader.

  11. Tony Healy

    I don’t think Microsoft’s core capabilities have ever been well understood. In the late 80s/early 90s conventional wisdom held that Windows would never succeed in the enterprise, or in education, or for consumers, or for games. Good reasons were proferred in each case. And yet Microsoft slowly transformed the consumer experience and at the same time built the marketing expertise to capture the enterprise.

    For all its achievements, Google just doesn’t have that capability, and probably never will. It’s boring, for one thing. And the deal with IBM reminds me of foxes guarding the chicken coop.

    For Microsoft, the Office franchise is not really just about the product, but also about reliability and assurance, which are what IT managers look for. Playing experiments with IBM consulting ware and Google’s latest are not really high on the list for corporate executives.

    Both companies (Microsoft and Google) will do some interesting things, but I don’t think, for Google, it will be in the enterprise space.

  12. Sam


    There is a common view, mistaken, that Microsoft will be successful changing the wings on the airplane while still in flight.

    Specifically, some folks imagine a successful self-cannibalization of Office by Office+Cloud moving gradually into All-Cloud. Success doing this presupposes that the revenue & margin model(s) across the shift are constant, which is to say that a single customer would generate equal unit revenues & operating profit in a) shrinkwrap; b) shrink+web; and c) web-only.

    Hardly so, principally because the basic features are being commoditized and becoming free. To charge the same price in the cloud for the equivalent slice of an old client-server word-processing session with Office is going to take either i) some very clever feature innovations; or ii) some very clever lockin mechanisms.

    We can see the (ii) lockin mechanisms being honed in the Redmond skunkworks as we speak: OOXML’s ratification (which means that Office is a standards-compliant universal editor front-end to the proprietary Microsoft cloud); the .Net SDK has some clever & well thought out dependencies between XAML and OOXML, Office, Office documents, Exchange & Sharepoint (it is below the radar how Office documents will embed XPS & Silverlight cues for printing & web exposure & vertical business processes that are designed to work ONLY with Microsoft programmatic “standards”). Once these co-dependencies propagate to the Web through the efforts of ISVs in the Microsoft feeding chain, the Microsoft (PROPRIETARY) Cloud will be alive and profitable.

    But I do not see enterprises willingly paying for tools and business processes which can be much less expensive (and open, i.e., free from control-points) if W3C standards for all the above components are successfully propagated through open source and non-open source tools and if the awareness of CIOs of the lockin traps being set continues to grow as we are seeing cascading through state government in the open document movement.

    It’s my view that Ballmer simply isn’t clever enough to get this done. It’s too Soviet; too big a juggling display to see through to the end.

    The consciousness of Microsoft’s intention is widespread now. If customers — individual or corporate — are given a choice between roughly equal service quality from Google, Microsoft or Yahoo! (for example ;-) for hosting their work, files, archives, business processes, or piping their Web Services (SOA or whatever) data connections, it’s my belief that Microsoft is selected out based, yes, upon factors of TRUST.

    In the cloud-conscious world, Microsoft must project its most panic-stricken and ungenerous ego with geometric force just to stay even. Change is happening so fast now that the Yahoo! deal — for one thing — would have become irrelevant from a business perspective even before its regulatory rejection. (Therefore, Ballmer was smart to walk away.)

    The status quo cannot sustain itself because control of the magnitude required is simply too heavy to keep up. Though I would applaud the energy behind the enterprise.

  13. Linuxguru1968

    Back during the Browser Wars, Marc Andreesen was once quoted as referring to Windows as “just a bag of drivers”. I think history has proved him right.

  14. Technical Writing Geek

    Branagh’s Hamlet is all Ham. I’m glad to see it get a well-deserved bashing.

    However, I think the Google Apps/SaaS is mostly hype. People want local applications, but they want them to be more transparent.

    Office 2007 is a move in that direction; OpenOffice 2.0 was not (3.0 was released today, and maybe it does a better job).

    I think in all this buzzword hype we forget that what the user wants is the fastest path to make their data work for them. This is why Office succeeded: it was a one stop shop for the programs that would handle the data formats your friends and office mates were using.

  15. Tom Lord

    Linuxguru1968: I’ve also heard Andreeson express surprise that the browser has come to be so central. He expected that the web would become an aspect of the functionality of many apps, rather than many apps being replaced by the browser. Javascript is good but not that good and I think his only surprise is about timing — his initial feeling was right. Hence, “is Office the new browser?”

    However, Technical Writing Geek: nobody, including MSFT, has a huge advantage here. Office and OpenOffice and many other apps have boatloads of pre-web baggage. You ever see “Fitzcarraldo”? The opportunity is vast and the legacy systems have all the maneuverability of a very large brick. MSFT’s chief potential advantage in this largely undiscovered space is just that they are early to take it seriously.


  16. Linuxguru1968

    I read cost analysis studies that show only a saving of about 10% using subscription based web apps over per seat licenses. I think the real issue is the need for local customization. As Nick has pointed out, the commoditization of IT will result in homogeneity in business practices that will make large amounts of customized apps unnecessary – web based will predominate. Of course, wireless technology has completely freed the knowledge worker from the licensed seat anyway. Over time as business practices evolve around mobile computing, the desk bound office suite will become the Model-T of IT. Fun to drive on the weekends but never seen on the raceway of corporate business.

  17. Tom Lord


    Doesn’t it come down this question: can a competitive advantage be obtained by having and using more rather than less computing power in edge nodes?

    And, also this: doesn’t free software (or “open source” software) ultimately do away with seat licenses, number-of-account-licenses, and most margins obtained by monopolizing a hosted application?

    I think the answer is “yes / yes” and I’m unclear why anyone would disagree.

    If edges are powerful and per-user costs are strictly bandwidth, storage, CPU bandwidth and tiny increments of support what will that look like?

    I think it looks like a desktop that follows each user everywhere and that has global-scale sharing and collaboration. Some would say that that’s what the hosted application firms are providing but, well, they aren’t. They’re essentially doing mainframes with smart terminals and maybe a tiny bit of local storage. They’re centralizing points of failure like mad. They’re constantly asking users to settle for pretty weak clients and dumbing down of functionality expectations. The big ones are spending like crazy on huge data centers built with and for computing architectures that I think we should be skeptical will survive the test of time — they might never recover their sunk costs, on average.

    I guess we’ll see. I don’t mean to draw out a “back and forth” between us on Mr. Carr’s blog and that probably isn’t all that interesting to others but, well, it is an interesting topic for some of us, I guess :-)

    I generally agree strongly with Mr. Carr’s theses about the conversion of computing to “utility” — I just think we’re looking at a false start in this first round.


  18. Linuxguru1968

    Tom Lord:

    I do think we are seeing a regression back to the main frame/dumb terminal model in a much more ubiquitous role with the Internet converging with the PSTN. For most non-technical users, most of the CPU cycles on the edges are involved with rendering content rather that computing results. I think there will always be a subset of technical users who will require local storage and CPU cycles for doing work: musicians, scientist, hobbyists and etc. because the time latency need to perform those tasks prohibits the migration of computation for those tasks to the cloud. However, if the Internet ever truly evolved into a Grid in which the time latency on the net approaches the bus of a PC then they will migrate out to the cloud as well. But, I think that is many years away.

  19. Tom Lord


    I wonder if Mr. Carr responds to requests. Maybe he could write some more about the trend towards “mainframes” (as current trends practice it) and human freedom.

    Light, fluffy topic, I admit ;-)-t

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