In-Depth

Clouds Collide in Strategic Microsoft vs. Google Battle

Microsoft's flagship Windows, Office and Exchange offerings may face renewed challenges in the stratospheric battle to come.

• By Jeffrey Schwartz
• 02/02/2011

This is new territory. In fact, it's not territory at all: It's the cloud, and that's part of Microsoft's problem. The software titan has long dominated the market for on-premises software, but the battle for supremacy in cloud computing is just beginning. And Microsoft's chief enemy, Google Inc., is armed and ready to shoot down its old-school rival.

This isn't just about the Microsoft cloud versus the Google cloud anymore, either, although that war is heating up rapidly. Google is also hitting Microsoft where it hurts: in the OS and server markets, the products that made Microsoft the giant it is today.

The more big cloud accounts Google wins, the more its services will displace the dominant Microsoft desktop model. Some observers believe that the Google offerings will have a limited impact, but others say that the search giant's critics are underestimating its enterprise wherewithal.

The two Microsoft moneymakers Google threatens the most are Windows and Office. The search giant wants to replace those client-based applications with purely cloud-based alternatives, including Chrome OS and Google Apps for Business. Google services replace desktop computing with a pure-cloud model, so Exchange and SharePoint are at risk, too.

Microsoft, on the other hand, talks about being "all-in" for the cloud but doesn't offer the cloud-only play that Google touts. Redmond's approach involves more of a hybrid model, with on-premises and cloud services working together.

Google Takes the Offensive
Key to the Google offering is its enterprise browser, Google Chrome for Business. Equipped with a Microsoft Installer, Chrome for Business lets IT admins control updates, customize deployments, manage Group Policies and set authentication protocols. Google Apps for Business, the company's suite of productivity applications, now has an administrative console that lets IT set Group Policies.

Plus, Google keeps adding new features to Apps for Business, putting the suite on more even footing with Office, SharePoint and Exchange. Google further proved its cloud commitment when, in December, it released thousands of test computers loaded with the Chrome OS. These Web-only Chrome OS machines boot up instantly.

Of course, Microsoft isn't exactly hurting yet. It recently reported huge sales of the latest versions of Windows and Office. As a result, some observers say that it's difficult to take any threat from Google seriously. After all, Google isn't the first company to try to dethrone the Redmond software king. Novell, Netscape Communications, Sun Microsystems Inc. and Red Hat Inc. have all tried and failed.

This time, though, the battle is different. Microsoft has no virtual monopoly in cloud services, no insurmountable lead that Google will struggle to overcome. And Redmond is clearly aware that Google is gunning for it.

"They're coming after us, guns blazing; they're all over us," said Microsoft COO Kevin Turner in a speech at last summer's Microsoft Worldwide Partner Conference.

However, Turner predicted that Microsoft would eventually win back customers that defected to Google.

Google CEO Eric Schmidt, a longtime battler of Microsoft, knows that the fight is different this time. Nearly 15 years ago, Schmidt, then Sun's CTO, predicted that network computers (NCs) would sweep Internet computing and sweep desktop software out. Ultimately, he might have been right; the vision for NCs presaged what has become the cloud.

But the NCs that Sun, IBM Corp. and others introduced at the time never took off, in part because they suffered from bandwidth and back-end infrastructure constraints. Those problems, however, are less prevalent today.

"We were right then, but we were wrong then," Schmidt said during a speech given at the launch of the Chrome OS beta in San Francisco. "We were wrong in understanding how complex and subtle the problems were. We couldn't build great applications on the Web technologies of the time. We could build information resources, but you couldn't build Web applications that were at the scale and power of the then-existing desktop applications."

Schmidt now believes that NCs running Chrome OS can compete with machines running Windows and the Mac OS X. Acer Inc. and Samsung are scheduled to release Chrome OS devices later this year, and other vendors say they have plans as well. The machines will be diskless systems with limited onboard solid-state memory. They won't have the nuances of traditional notebook PCs -- such as function keys and a caps-lock button -- but they will save all data in the cloud, where their apps will also run.

Verified boot provides security for Chrome OS machines. Verified boot ensures that the OS hasn't been modified on the system, and if it has, the system rolls back to a previous version. Upon login, users see a browser desktop that's Google-centric -- the interface offers access to Google Docs, Search, Gmail, YouTube and a Web store consisting of a marketplace of third-party browser-based apps.

Early Chrome OS machines will come with 12-inch displays and allow eight hours of continuous use. They'll also have constant broadband connectivity thanks to a deal inked with Verizon Wireless to provide 3G service when WiFi service is unavailable. But users will receive only 100MB per month for free, and Verizon hasn't provided further details on packages other than an offering of services for $10 a day.

Schmidt, once reluctant to allow Google to jump into the browser and OS market, now appears ready to take another shot at Microsoft: "Cloud computing will essentially define computing as we all know it," Schmidt said. "With Chrome OS, we have the development of a viable third choice in real operating systems on the desktop. There just hasn't been an alternative that took advantage of cloud computing, and now we finally have a product that's strong enough, technical enough, scalable enough and fast enough that you could build actual powerful platforms on it. It's different in ways that matter if you build in cloud computing."

Enterprise Play
Some observers argue that the Google Notebook, dubbed Cr-48, will appeal to consumers rather than to enterprise users. But Google announced a partnership with longtime Microsoft ally Citrix Systems Inc. that will allow users to run the Citrix Receiver on Chrome OS. With that connection, users will be able to render server-side Windows apps and data on the Google-based computers. (The Citrix Receiver is also available for the Apple iPad).

"The Receiver itself is HTML5, so there's nothing you have to download, there's nothing you have to run locally; if you have a Web browser, you can access that desktop," says Rajen Sheth, a Google product manager.

Early reviews of the Cr-48 are lukewarm. In a PC Magazine column, analyst Tim Bajarin of Creative Strategies pointed out that the machines are very Google-centric. "It's completely tied to your Google Gmail account, or any other Google-related service for which you have an account, such as Google Voice, Picasa or any Google app that requires registration," he wrote in December. "That means you are driven through a Google view of the world, or more specifically, its browser/apps world."

Others are skeptical as well. "Chrome OS is not going to happen until there's high-speed, low-cost Internet access everywhere," says Andrew Bradley, the Windows platform supervisor at Rea Magnet Wire Co. Inc. "It's a nice idea, but just that -- a lab idea. The cost of ownership is just too high to require someone to have a 3G cell data plan just to run a laptop with this OS."

While success isn't guaranteed, Google Apps for Business appears to be gaining a foothold with users. Microsoft has sold 500 million copies of Office, but Google Apps for Business is steadily becoming an increasingly competitive alternative. Google recently boosted the suite with new enterprise features that support collaboration and offer richer functionality and better administrative support than ever before.

And Google isn't just going after Office. It's also trying to displace Exchange with its own hosted e-mail service, as well as SharePoint with its cloud-based Google Sites offering, which can be customized with Google Gadgets running atop of Google App Engine.

"We're to the point where with the Google Docs suite, we can say that it can be an office productivity tool for the vast majority of end users," Google's Sheth says (see "Google: Betting on Evolution"). "A vast majority of users within an organization don't need the functionality that's there within Microsoft Office."

Google has scored some high-profile cloud wins, such as the U.S. General Services Administration, Motorola Inc. and Genentech Inc. The company says it has 3 million customers and 30 million users of Google Apps. That's a pittance compared to the Office installed base, and Google's challenge will be to grow that number exponentially. At the same time, Microsoft is aggressively moving its Office and Exchange customers to the cloud as well, touting recent wins with the City of New York and the U.S. Department of Agriculture. The rhetoric from both companies is at fever pitch.

"They've been in the cloud productivity space for the last four years, and the results haven't been stellar," Tom Rizzo, Microsoft senior director of online services, says of Google (see "Microsoft: Hybrid Strategy"). "Most of their customers sit on the free version. They're not paying customers into the Google service. Google has no roadmap. They kill products like Wave; they cut off support so customers are left kind of stranded if they've invested in anything that never comes out of beta or comes out of beta and then is killed."

Still, Microsoft isn't taking Google for granted. The company held a webcast for its vast partner base in December on how to compete with Google. Molly McCarthy, Microsoft U.S. Google compete lead, offered a laundry list of problems with Gmail. She said the enterprise version lacks the ability to assign priority to messages, doesn't support the sending of return receipts, offers no delegation of tasks, lacks rich-text e-mail signatures and presents numerous formatting issues.

Google's Sheth says that McCarthy is exaggerating. "I'd contend a lot of those, some of those are blatantly incorrect," Sheth says. "We do have rich-text signatures and that's part of the platform. And for prioritization, we actually go several steps further than just having the end user to be able to set priority on a message."

Google's offensive approach has Microsoft on its heels. In her webcast, McCarthy gave a four-pronged strategy for competing with Google. The first is to assume that Google is already inside some accounts to some degree. The second is to protect the base by nurturing relationships. The third revolves around seeking green-field opportunities by selling the virtues of the forthcoming Office 365 service. The fourth and final is to try to win back accounts that have already defected to Google.

"As much as we've tried to compete really hard and win, we've definitely had a few losses and Google is great about talking about them in the press. But we're really wanting to get super aggressive about going back after some of those losses we've had to ultimately build them back into the Microsoft fold," she said. "I'm so amazed at how many times I get pulled in with customers that may or may not have heard of some of our cloud stories, may not have seen a lot of our offerings around [Office] 2010, particularly around some of the Web-app type of functionality."

Different Approaches
Google and Microsoft have very different go-to-market strategies when it comes to the cloud. Google isn't weighed down by a legacy of on-premises software and, in fact, offers only cloud-based services. Microsoft, still relying on revenue generated by Windows and Office, has a hybrid vision for the cloud. Redmond hopes that some users will prefer to keep data on their desktops or in their corporate datacenters, while others will store data in the cloud or use both models.

For its part, Google seems to understand that the Microsoft desktop-based model won't go away overnight. Google recently released the beta for Cloud Connect, a plug-in that will let users work in Microsoft Office and store that data in the Google Apps cloud.

"We see this as a great bridge to the cloud," Sheth says. "It makes it such that within an organization, you're not going to get every user to convert on day one -- but this makes it such that you can convert a good majority of your users and then also provide the collaborative functionality to the users. The great thing about Cloud Connect is all of a sudden, without any new server-side software or any upgrades to Office, you have strong collaborative functionality versus having to upgrade your entire infrastructure to Office 2010 and upgrade and implement SharePoint 2010 on the server side to get collaborative functionality that actually isn't on par with Google Docs."

Microsoft's Rizzo sees Cloud Connect differently. "I think it's a little bit of them waving the white flag," Rizzo says. "When they first came out, they were very aggressive against Office. Four years ago, they said you can replace Office on the desktop and Google Apps is going to be that replacement. Then they quickly backed away from that and said, 'Maybe Google Apps isn't a replacement for Office; it will be a companion to Office.' Now they're building technology to try and connect it together."

That misses the point, Sheth responds. "That's completely incorrect," he says of Rizzo's retort that Google is waving the white flag with Cloud Connect. "I think really what we've found in talking to customers is a vast majority of users within an organization don't need the functionality that's there within Microsoft Office. So we believe where we are with Google Docs right now is a great solution for the vast majority of users within an organization. With that said, there are users who for one reason or another want to use Microsoft Office."

Google's Momentum
Google now boasts 2,000 enterprise partners for Google Apps, a number that doubled in 2010. (Microsoft, on the other hand, has 16,000 Microsoft Business Productivity Online Suite, or BPOS, partners and more than 400,000 total companies in its channel.) Some partners sell both Google and Microsoft offerings. Others, however, work only with Google. One such provider is Atlanta-based Cloud Sherpas, which offers the Google stack and says its business grew 500 percent last year.

"There are lots of wins to be had," says Mike Cohn, Cloud Sherpas founder and VP of Product Management and Marketing. "These are sizeable opportunities. We're taking out Microsoft Exchange; we're taking out Lotus Notes, we're taking out GroupWise."

Google has spun 60 of its apps into Google Apps for Business, including Google Voice, Analytics, Adwords and Picasa. "For $50, you get a complete messaging and collaboration solution from Google. When you start looking at the entire suite of offerings, you still really can't compare the two; you get a tremendous amount of value from Google," Cohn says.

Like many Google partners, Cloud Sherpas offers data-migration services and its own custom-designed management console. The company also develops both systems-management and line-of-business applications for customers using Google App Script running on the Google App Engine cloud platform.

"We're playing here in a big way," Cohn says. "In fact, we've got a number of customers that have come to us essentially to help them write applications on App Engine, and it goes beyond just applications. It's also intranet, so when we combine Google Sites -- which is Google's Wiki platform -- along with Google App Engine, we have a winning combination for building robust intranet and applications for our customers."

Best of Both Worlds
Some partners that are bullish on Google also offer Microsoft BPOS, which will morph into Office 365 this summer. Office 365 will consist of Exchange Online, Office Web Apps and Lync Online, the Microsoft unified communications (UC) offering that allows users to control their telephone systems.

Microsoft Office Plus, meanwhile, will offer the rich Office desktop but will work in the cloud as well. Microsoft is under pressure to deliver Office 365 as soon as possible. The forthcoming offering will allow Office 2010 users to share native documents in the cloud as well as access them via browser or phone. Office 365 will be available in SKUs targeted at small businesses, enterprises and educational institutions, and will provide business-grade e-mail and collaboration with features such as the ability to federate calendars among organizations.

Tony Safoian, president and CEO of North Hollywood, Calif.-based SADA Systems Inc., works with both Microsoft and Google in the cloud. "Google is very much focused on enabling tools and features and functionality all in the browser. Microsoft's focus has been allowing a lot of functionality in the browser, but full functionality enabled through the use of Microsoft Office suite on the desktop," Safoian says. "[Microsoft has] more of a desktop-dependent vision of cloud versus a fully browser-immersed vision of cloud, and I think that's the basis for the rest of the differentiation that we see."

Google customers like the low price tag of Google Apps and are happy with its limited functionality. "Personally, I use Google Apps Premier Edition. $50 per user per year goes a long way," says Tim Wessels of Oort Cloud Computing, a New England-based consultancy to small and midsize businesses. "My needs are pretty standard and Google Apps works well enough. I like the recent release of a Google 'connector' [the aforementioned Cloud Connect] to Microsoft Office, which allows Microsoft Office users to save their files in native format to Google Apps."

Wessels continues: "Unfortunately, Microsoft's C-suite execs haven't given up on selling licenses for premises-based software like Office despite being warned by the retiring Ray Ozzie that they should give it up. If you look carefully at BPOS, aka Office 365, you'll see that it's tied at the apron strings to a copy of Office installed on a PC or laptop or netbook. Office 365 is a case of Microsoft talking the talk but not walking the walk when it comes to SaaS [Software as a Service]. And at up to $24 per user per month, Office 365 will be an additional $288 per year over and above a license for Office 2010. No bargain here, but if you can't live without it, then you have no choice but to pay the price."

Other customers, though, flat out fear Google. "Yes, I use Google Analytics on Web sites for my clients -- but I just wouldn't trust them with any of my data," says Bernie Haberer, of BH Enterprises of East Lake Inc. "I just have this gut feeling that Google is becoming the 'evil empire' -- worse than anything all the Microsoft haters hate."

The Bottom Line
The year 2011 will be critical for the Google enterprise cloud effort. It's taking on not only the Microsoft hybrid cloud strategy, but also Redmond's dominance in the OS and server markets. But Google, with its pure-cloud approach, is a challenger the likes of which Microsoft has never seen before, and the cloud is a whole new battle for everybody involved. Competition will be tough, but it might also produce positive results for users.

Safoian, of SADA Systems, says the cloud rivalry is a benefit to the industry. "It's great to see the evolution of these platforms; we feel the competition is great. It's healthy for the market, and in the end it means that customers win," he says. "They get the right tools at the right price point, and we think it's healthy for the market that Google is there pushing the envelope in the browser and that Microsoft is there innovating as fast as it can."