/ 11 August 2010

Is Google the next Microsoft?

Comparing companies is a bit like arguing over sporting heroes — everyone has an opinion and no one can conclusively prove theirs is right. That’s never been more true than the Google vs Microsoft debate. While it may seem like comparing a footballer to a baseball pitcher, there are actually some striking similarities.

For instance, both were founded by a pair of Ivy League-educated nerds in their 20s at the start of a technology revolution. In Microsoft’s case it was the personal computing tsunami in the early 1980s, and in Google’s it was the birth of the World Wide Web in the late 1990s. Both companies turned their founders into billionaires in less than a decade.

In their heyday both have been Meccas for the best and the brightest in the world of software development, offering generous stock options, cutting-edge projects and the chance to develop for global customer bases.

Digging a bit deeper we see that each of the titans has only two globally successful products from which their entire empires have grown. In Microsoft’s case it’s Windows — the world’s most widely used operating system — and the Office suite, which includes blockbusters like Word, Excel and PowerPoint. In Google’s case it’s a self-service advertising platform intertwined into the world’s leading search engine, and Android, a free operating system for cellphones.

Both companies have experienced spectacular failures in their attempts to diversify their offerings. In Microsoft’s case it has recently spent hundreds of millions of dollars trying to muscle its way into the mobile phone market only to be beaten to the punch by the likes of Apple and Google. Its much-hyped Kin phone was withdrawn from the market only two months after it launched.

In Google’s case the elusive prize is social media. Last week it quietly shut down Google Wave, an ambitious attempt to replace email with an all-singing, all-dancing combination of document sharing, chat, blogging and forum-like functions. Many think Google Buzz, its abortive Twitter clone, will be next.

Even Orkut, which saw early success in Brazil and India, is now losing ground to the Facebook juggernaut. And there are many less spectacular failures if you care to recall them.

Flat years
But by far the most worrying correlation for investors is in the share price. Both Google and Microsoft have been flat for several years now, though in Microsoft’s case the lull has lasted a decade, while Google only stopped growing in 2006.

The problem is, once you look past these obvious similarities, the neat hypothesis quickly breaks down. Firstly, Google is still in the middle of a growth industry, the internet (and the gathering cloud-computing revolution), while Microsoft’s original core is in inevitable decline.

Secondly, their business models couldn’t be more different. Google sells attention, cheaply and in vast quantities, while Microsoft still sells software, dearly and in (proportionately) smaller quantities.

Thirdly, while both these empires rest on a pair of successes, neither of them has completely failed to diversify. Microsoft, for instance, makes more than 20% of its profits from its successful enterprise and entertainment divisions. Google is less diversified in terms of pure revenue, but its free online services like Gmail (an email system) and Google Docs (a free competitor to Office) are growing in leaps and bounds.

Most technology commentators would see my question as an insult or warning to Google. The technology sector is more like showbiz than most other industries. It’s as important to be seen to be the coolest and the cleverest as it is to actually be launching the most innovative products.

Google still has most of its mojo, despite losing some of its cool quotient to the likes of Facebook and Twitter. This mojo is vital to attracting fresh talent and favourable press — both of which boost share prices and give it more breathing room to plot the next big thing. Microsoft, on the other hand, has been largely out of touch with that razzle-dazzle for more than a decade — something that causes it obvious pain.

But, as is often the case in showbiz, the real money is with the boring guys. Microsoft is a 35-year-old company that is worth more than $200-billion and made $25-billion in its last financial year. On that basis, is Microsoft even “the next Microsoft”? When John D Rockefeller — the world’s first billionaire — founded Standard Oil, no one chastised him for specialising in petrochemicals.

Then again, if sound and fury are all that matter, neither Microsoft nor Google are currently in the lead. That honour falls to the current generation of Young Turks — the kids busily founding the Facebooks, Twitters and Foursquares. I’d still prefer stock in either Microsoft or Google to one of those companies. But then I’m over 30, so what do I know anyway?