As Microsoft’s travails in delivering the next version of Windows demonstrate, building an operating system is a bitch. It’s complicated and expensive, and trying to speed up the process often just slows it down. But even as the world’s largest software company struggles to meet its latest deadline for unveiling Vista, it’s announcing a massive new effort to build a completely different operating system – a web operating system modeled on Google’s sophisticated network of computing “clusters.” Google’s Web OS runs the company’s search engine and a rapidly expanding set of related services such as the lucrative AdWords advertising system. Seeing such web services as the future of software, Microsoft feels it has no choice but to build its own Web OS to compete with Google’s. “I believe that only two or three companies can really deliver the infrastructure,” said Microsoft CEO Steve Ballmer last week in announcing Microsoft’s plans.
A Web OS is very different from a traditional computer operating system like Windows. The latter is an intellectual construct, a set of instructions written by people. You have to spend a lot on salaries and other labor costs to build a traditional OS, but the capital expenses are negligible. A Web OS, on the other hand, takes physical as well as intellectual form. If you want to control the OS, as Google and Microsoft do, then you not only have to write the instructions but you have to buy, assemble, and maintain all the equipment – processors, storage drives, and so on – that the instructions control. Because a Web OS runs centrally, you have to own the equipment it runs on, rather than offloading that headache onto your customers.
That requires a lot of investment. Google this year will buy at least $1.5 billion worth of capital equipment, double what it spent last year and about five times what it spent two years ago. In announcing its first quarter financial results a couple of weeks ago, the company said, “We expect that the growth rate in capital expenditures in 2006 will be substantially greater than the revenue growth rate for the year.” (That’s not a state of affairs you’d want to continue indefinitely.) Google is also spending about $600 million on research and development this year, a number that’s rising sharply as well.
Microsoft, said Ballmer last week, will jack up its capital spending for its web business to $500 million during its next fiscal year, which begins on July 1. That’s up from an estimated $300 million this year and just $100 million last year. It will also spend a whopping $1.1 billion on R&D for its web business next year, as it rushes to catch Google.
Clearly, this is a high-stakes battle.
I think its outcome will hinge, to a considerable degree, on whether having two OSes – the computer OS (Windows) and the Web OS (Live) – proves an advantage or a disadvantage for Microsoft. On the one hand, it would seem to be a hindrance. One of Google’s great strengths has been its lack of a past. In creating its Web OS, it’s had a clean slate. It hasn’t had to make compromises with other business units or with existing products. It’s constructed its Web OS’s cluster architecture out of cheap commodity components and a custom-built version of Linux. It’s hard to picture Microsoft giving its engineers a similarly clean slate as they develop a competing cluster architecture. Can you imagine Microsoft announcing, for instance, that it will use a form of Linux to run its Web OS? The existing OS and the business it represents will, in other words, constrain and complicate the development of the Web OS. Microsoft’s web team will have to make compromises. In general, constraints, complications and compromises aren’t good.
On the other hand – and here’s where Google gets nervous – the Web OS is not going to suddenly displace the computer OS. The two OSes will run in tandem for the foreseeable future, with tasks steadily shifting from the computer OS to the Web OS. Microsoft has an opportunity to integrate the two OSes in a way that can put Google at a significant disadvantage. To put it another way, it has an opportunity to manage customers’ transition from the computer OS to the Web OS in a way that furthers its own interests – and damages Google’s. Google could, of course, try to counter Microsoft’s advantage by offering its own computer OS – a version of Linux, for instance – but it’s hard to imagine such a move succeeding. Would a critical mass of users really make the leap?
So, to boil it down, the outcome of the competition between Microsoft and Google may come down to a simple question: Are two OSes better than one? The answer is largely in Microsoft’s hands.