Poor Microsoft. Never before have so many feared for the future of a company so profitable ($14.6 billion in operating earnings in fiscal 2005, up 61 percent from 2004), so wealthy ($38 billion in cash and short-term investments at year end, even after giving back a record $44 billion to shareholders) and so dominant (Windows and Office hold commanding market share leads).
In an investor and media environment that values what's glowing on the horizon more than what's sitting on the table, Google, open source and Web-based services are in; Microsoft and conventional software are out. Not since the Netscape browser and initial public offering heralded a new world order a decade ago have we witnessed so much "we will change the world" cockiness from the Web set.
Take Google, arguably the hottest (and cockiest) company in the world. It's a hive of considerable intellect and creativity, built around a remarkably successful search engine. But Google isn't The Future of enterprise computing. It is to Microsoft and the IT establishment what Amazon.com has always been to Wal-Mart: a compelling alternative for a growing number of products and services, but no match in terms of breadth and depth.
Google's recent deal with Sun Microsystems was just the latest in a string of company announcements that were long on promise but short on specifics. Sun plans to offer the Google Toolbar as an optional download with its Java Runtime Environment, giving Google entrée to millions more Windows PCs. In return, Google said it will "explore opportunities to promote and enhance Sun technologies," including the StarOffice desktop suite, and will buy an undisclosed dollar amount and type of Sun servers. "This is a big deal," Sun CEO Scott McNealy said at the news conference, somehow resisting the temptation to call it a "really, really big" deal. "We, a long time ago, were pretty hot. We were the dot in dot-com. ... We want to get it back." Someone please tell McNealy that the dot, and all it stands for, is dead and buried.
Meantime, Google is mixing in other circles, having announced a week earlier it wants to build a Wi-Fi network for the city of San Francisco (though it has no such experience), and a week before that a plan to build a whopping 1 million-square-foot office park to research everything from large-scale data management to something called "bio-info-nano convergence." Google is also in talks to take a minority stake in America Online, muscling in on Microsoft, another AOL suitor.
What do all these moves add up to? When asked by InformationWeek in May about his company's long-term enterprise strategy beyond a nifty desktop search appliance, Google CEO Eric Schmidt replied: "We delight in the lack of such strategy." How cool. But imagine if Bill Gates had made such a statement. How flip.
It's unfair to pick on just Google. Plenty of other Web companies are playing fast and loose. EBay, for instance, is paying $2.6 billion (43 times revenue) for VoIP provider Skype, and Yahoo is paying $1 billion and a similar revenue multiple for 40 percent of Chinese commerce site Alibaba.com. Still, Google's price-earnings ratio, at close to 90, is in a high-rent district of its own.
Where necessary, Microsoft will adapt and respond to all its Web rivals--healthy paranoia still runs deep in Redmond. Already, Microsoft has shaken up its organization to deliver certain kinds of software, such as e-mail add-ons, over the Web in incremental revs rather than in one massive upgrade. However, Microsoft isn't convinced that every software product demands the Web service approach.
Meantime, Google, Yahoo and eBay, themselves battle-hardened survivors of the dot-com implosion led by shrewd management teams, are to be taken seriously. The new battle is joined. Just spare us the marketing maneuvers.
Rob Preston is editor in chief of Network Computing. Write to him at [email protected].