How Google Threatens Microsoft

Not too long ago, Google Inc. seemed little more than a pesky insect to Microsoft Corp.'s 800-pound gorilla.

No more. As Google rapidly rolls out new products, the company best known for its wildly popular search engine is muscling into the software giant's turf, including its stronghold: the computer desktop.

Analysts say Google's aggressive ambitions could pose a formidable threat to Microsoft because it gets to the heart of what drives Microsoft's dominance: its control of the user experience through the Windows operating system.

If successful, Google could help refashion computing, making people less reliant on storing information on the Microsoft-powered PC on their desk and more dependent on free Web-based e-mail and search functions that can be accessed anywhere from any device regardless of the operating system.

Under such circumstances, the risk for Microsoft is that the computer desktop as we know it could cease to exist, said David Garrity, an analyst with Caris & Co. The question, Garrity said, is whether computer buyers may one day decide that they no longer even need a Microsoft operating system.

The two companies are already battling it out on fronts including Web search, free e-mail and better ways for searching individual computers. Analysts say that's evidence Microsoft should -- and likely is -- taking Google much more seriously.

``They'd be mad not to,'' said Niki Scevak with Jupiter Research.

Marissa Mayer, Google's director of consumer Web products, said the company's goal is to organize information and make it universally accessible, and that goes far beyond search. But she downplays the suggestion that Google's tools could eventually overtake Microsoft's ubiquitous software, saying the company doesn't currently have such plans but ``it's hard to speculate'' what the future might bring. Chief executive Eric Schmidt has, however, ruled out developing a Google browser to compete with Microsoft's dominant Internet Explorer.

The Google-Microsoft competition is good news for consumers because it means more choices and better products.

For instance, Google's expansion into e-mail already has forced Microsoft and others to dramatically increase free storage. Analysts say it's also prodding Microsoft to improve products customers have long complained about.

As it became clear that Google and other search engines were increasingly gaining control over people's time online, Microsoft's MSN online division rapidly began developing its own search technology. Microsoft had previously outsourced that job.

Web search isn't the only place where Microsoft is playing catch-up. In June, Microsoft launched an Internet browser toolbar that blocks pop-up ads and enables search, years after Google had created its own.

And after Google announced plans for Gmail, a free e-mail service touting massive amounts of memory, Microsoft said it would boost free memory on its Hotmail accounts. Adam Sohn, a director with MSN, said to expect more Hotmail improvements soon, but he wouldn't provide details. Microsoft also has promised its own system for searching desktop computers, responding to frustrations over how difficult it is to find things like e-mails and family photos on increasingly cluttered computers. Google launched its desktop search product last month and said users should expect more improvements to that product.

Then there is ad delivery, where Microsoft recently extended through June 2006 a contract for Yahoo Inc. to place relevant ads alongside its regular search results. Ad placement alongside search results is Google's main cash cow.

David Smith, a vice president with Gartner Inc., says the chain of events illustrates that Google is proving to be customer-driven while Microsoft tends to be more driven by competitive threats.

Microsoft denies that Google has been the impetus for improvements in its products. Sohn says the company is simply responding to customer feedback. He also downplays the Google competition, saying Microsoft has always faced plenty of foes.

``There's lots of innovation and competition, and it's way bigger than just Google, who I think everybody's excited about and focused on because they're a little bit newer,'' Sohn said.

Google, meantime, has signaled that it will fight Microsoft's moves into its turf. The day before Microsoft launched a test version of its Web search engine, Google said it had nearly doubled the size of its search engine index. And this week, Mountain View, Calif.-based Google opened an office in Kirkland, not far from Microsoft's Redmond campus.

Mayer said the goal is to attract employees who don't want to leave their hometown.

Asked if that meant the company was recruiting Microsoft workers, she said: ``Not in a specific or targeted way, but we are looking at technical workers in the Seattle area who are interested in working for Google.''

Still, Scevak said it's still too early to say if Google will ultimately be able to pull off a massive shift in allegiance. While many people turn to Google for search, he says plenty of others could see no reason to leave Microsoft products, such as Hotmail _ especially if Microsoft is willing to match Google's improvements for free.

And while Google has been the first to desktop search, he says many users may still prefer to wait for Microsoft's more familiar product.

``It's a very, very early stage,'' Scevak said.