VHS, Blu-ray and Google?

What do VHS and Blu-ray have to do with Google? You’re probably familiar with these guys being the winning standards in video delivery formats, trumping Betamax and HD-DVD respectively.

For it’s part, Google wants to trump Microsoft to become the next storage and delivery format for your office content. Last weeks’ announcement of their enhanced set of services for the enterprise further underscore this desire, but are they set to become the next Blu-Ray, slamming the competition out of the ring before they’ve even got their tooth-guard set?

Ummm, no; not even close. In fact a quick tour of some respected websites paints a picture of a marketplace so heavily stacked against Google that one wonders why they’re even making these “C’mon, take a swing at me” announcements. Napoleon Syndrome, perhaps?

First, the announcement: On February 7th, Google announced the availability of Google Apps Team Edition. In Google’s own words, Team Edition allows groups or teams to “instantly share documents and calendars securely without burdening IT for support.” I’m sure IT is thrilled with the news that they can go home early and leave their infrastructure in the hands of Google. OK, non-quality statement from me there; let’s quote Rebecca Wettemann, an analyst with software tracking firm Nucleus Research instead: "If it is going to appeal within business enterprises, Google has to play nice with IT. Google still has to convince companies that they are to be trusted." (Source: Reuters.com).

OK, so maybe there are some concerns about turning one’s network over to Google, but the burning question is, assuming IT gives them the nod, are they about to unseat Microsoft as the recognized standard for collaborating on and sharing text-based information? Unless you’ve been living under a rock for the last decade you’re probably aware that Microsoft Office is without question the leading toolset for creating and editing documents. People buy it, people borrow it, people steal it, people get it pre-installed on their PCs. According to Business Week, July 2006 (Before Google Apps was even hatched) Microsoft Office has a tidy 95% market share and 400 million copies in circulation. Over the intervening 18 months Google Apps grew it’s installed base to a stunning – half million businesses using the product (source: Google). Let’s say that’s five million individual installs. What the heck, let’s say it’s ten million. Whatever the number, it’s still a long way behind Microsoft.

Even more important than installs is actual usage. I don’t have figures for Microsoft Office usage, but let’s use a simple number like “Lots.” How does Google compare to that? In December 2007 (eWeek) Microsoft Watch published the findings of a survey by NPD. Almost 600 PC users were asked “Have you heard about online, browser-based office productivity applications like Google Docs, Google Spreadsheets, gOffice, etc.?" NPD also asked, "If so, how often do you use them?" The results? Ninety-four percent of U.S. consumers have never tried a Web-based productivity suite alternative. A mere 0.5 percent have substituted Web-based productivity suites for desktop software such as Microsoft Office. Chris Swenson, NPD's director of Software Industry Analysis, described the 0.5 percent figure as being a "bit high." Swenson estimates that, of the projected 840 million PCs in use by the end of 2007, a mere 0.18% of them will use services like Google Apps. By my math, that works out to about 1.5 million users. Ouch.

Yet more interesting data from the survey: Of those that heard of and tried the service (4.1% of the survey population), only 0.5% use the service regularly. That’s an attrition rate of almost 90%. By any business model, that’s not good.

Thus far I haven’t gotten into WHY people don’t use these tools, or don’t stick with them. I think you’ll get the best answer if you try using Google Docs for yourself. Me, I’m biased. I think Google Docs sucks, especially if I’m working with a complex document that contains, oh, headers and footers. Headers and footers! I mean, c’mon, Google, that’s the first thing you PUT in a business document. For the record I’m no fan of Microsoft products either. I just reverted to Office 2003 because I couldn’t stand Office 2007’s “guess where I hid that tool you need today” menu system. But that’s fodder for another blog post. The point is, despite the very low standard set by Microsoft, Google still managed to blow it, delivering a service that I would never consider using for my critical business documents.

Let me reinforce that – I would NEVER use Google Docs for a business document. I’d go to the ends of the earth to find a computer with Office 2003 installed; I’d download and install OpenOffice; heck, I’d even reinstall Office 2007 before I’d use Google Docs. That may change later in 2008, or 2009, or 2020. But this is now, and my docs won’t wait. Hey, if you don’t like my independent opinion on the subject, go ask another, larger, less biased source – Microsoft. They recently “issued” their Top Ten list of why Google Apps sucks.

Speaking of Microsoft…this really is face-off between two very large, very profitable companies with different values and intent. Google is, at heart, a media company. They sell advertising, lots of it. Billions of dollars worth every year. Their total revenue for 2007 was a stunning $16.6 Billion.
How much of that revenue do you suppose comes from selling Google Apps? I don’t know, but if we look at their Q4 ’07 earnings statement we see that all non-site or non-partner earnings (i.e. everything BUT advertising) accounted for $70 million, or approx 1.5% of their revenue for the quarter. Note these figures include the Search Appliance, which has been Google’s enterprise mainstay for years. So I’m going to say with a high degree of confidence that Google’s enterprise business was less than $300 Million in 2007. Compare that to Microsoft, whose Q2 2008 earnings of $16.48 Billion consisted almost entirely of business software sales. Significantly, revenue from their Client, Business, and Server & Tools businesses each grew outrageously (68%, 15.5% and 37% respectively). AND their Online Services segment grew almost 40%, bringing in $863 Million for the quarter.

The numbers stack up strongly against Google. Microsoft’s Office business is huge, and growing. Google’s, by comparison, is tiny, and for a startup, somewhat anemic. 133% growth looks good on paper, but it’s on such a small base as to be insignificant. Google’s best-case installed base for 2007 was 1.5 million seats for Google Apps, compared to. 500+ million for Microsoft Office. And let’s not forget that near-90% attrition rate in the Google Apps user population.

This is not just an “out-there” problem for Google Apps. Internally Google is still structured very much like a start-up, where bratty, successful attention-grabbing products and services are highly valued. Google Apps, with it’s 1.5 million users after 18 months, is surely less interesting than YouTube or Orkut. Using the Google Search Appliance as an example, Google has not historically thrown it’s mighty resources behind enterprise tools. Perhaps that’s changed, but I doubt it. And if it WAS changing, Microsoft’s recent overtures to Yahoo will ensure Google is firmly refocused on maintaining and growing it’s search-based advertising business in the months and years ahead. A press release and a few minor service enhancements does not a strategy shift make.

Things could not be more different over on the other side of the ring. Microsoft is structured to sell recurring software licenses to enterprises, and almost every aspect of it’s business lines up behind that model. Strong distribution, aggressive protectionism, clever vertical and horizontal integration of products, an enormous installed base and billions in the bank will ensure Microsoft’s healthy growth well into the next decade.

There’s simply no likelihood of Google unseating Microsoft any time soon. I’m not saying it’s a Fait Accompli that Google will fail in it’s efforts to COMPETE with Microsoft. Far from it. But these two will have to go many rounds before Google is even a contender, let alone scoring a knockout of the reigning champ in this space.