Entrepreneur Watch

A Google PC?

While we're on the subject of Google competing with Microsoft, let's consider the long-standing rumor that Google will unveil its own branded PC, and take on Microsoft on its own turf.

On one hand, this strategy is rife with problems. Google is primarily a software company, and not many software makers have made the transition to hardware. (Microsoft is one of the few exceptions, with the XBox.) It could also prove to be a mistake of the type repeated over and over again by would-be Microsoft competitors who were run over by Big Redmond like possums on a Texas highway. The PCs will need a new operating system, which means Google will switch from competing on its own ground (search) to competing with Microsoft against its core strength (operating systems). Who wants to switch from something they know to something they've never tried before?

These are serious problems, and I'm not sure Google can overcome them.

But the other hand is more intriguing. First, Google is much more of a hardware company than people realize. At Stanford, Sergey was known for his ability to tweak servers and get the most performance out of them. Google has built an incredible server farm (John Markoff at the New York Times estimates 450,000 home-built servers, compared to 200,000 for Microsoft), integrated into one giant supercomputer. Analysts have estimated that Google is actually the second-largest server manufacturer in the world. It just doesn't sell them, but uses them all internally. Further, Google could just get some Taiwanese PC maker to build the computers under Google's brand name.

Second, the PCs would need an operating system and a browser. Google works with the Linux crowd and Firefox on those fronts. Linux has never made it on PCs because it is unfamiliar to most of us and generally has an interface only a programmer could love. But if there's one thing Google can do well, it's interface ease-of-use. By avoiding Microsoft's handicap of having to update a DOS-based legacy OS, the machines could be blazingly fast without using the latest microprocessors, requiring fewr upgrades. And without Microsoft software in the machine, they could easily be sold for about $300.

Third, a Google PC could connect people directly to Google's suite of online applications. It would probably be released with a new suite of desktop-like apps. Google could also make some apps resident in the machine rather than online, such as word processing. That program could even use access to Google's servers (say, fonts, a dictionary, thesaurus, grammar checker, etc.) to keep it spare and fast. They could even run Microsoft apps in an emulation mode for those unwilling to switch. That will slow the apps down, but if the rest of the machine is fast enough, it might be the first desktop to make up for that slowdown.

The apps could also be pared down to be easy for newcomers, and could dump many of the features that most people don't use in Microsoft's apps, gradually adding those that most people want. It could create several versions of spreadsheets and word processors, targeted at different levels of user sophistication.

All this could give Google the type of customer lock-in that Microsoft enjoys today.

Of course, others have tried similar things in the past. Lotus Development, Sun Microsystems and IBM have tried to get people to switch to Unix or Linux with new apps, to no avail. This would only work if Google can create the interfaces, the ease-of-use and the compatibility with Microsoft apps that others have failed to achieve.

And there are advantages Google enjoys that previous competitors did not have. It is an extraordinarily powerful brand name that people might trust to create a PC designed for the internet age. It would also play into the trend of net-based apps, assuming that really catches on for consumers. Applications could be updated online, making it easier for people to use, and could be free.

Again, it would be a hazardous and expensive strategy, one that could distract Google from its own core strengths. But I hope it happens. It would be a very interesting battle to watch.

Microsoft Doesn't Suck!

I know this isn't what blogs are supposed to do, but it's the best outlet I have right now to express opinions. For the good old days when I had a magazine in which to write opinion columns and start debates...  I still hope to continue the debates, these days over the changes that Google brings. If any of you disagree with my opinions, please contribute! Your site or mine. I love the abuse.

Curt Monash of the Monash Report was kind enough to defend my integrity against accusations of being a shill for Google, since we've worked together before. But he does note that I haven't refuted the claim that Microsoft can change its ways given time. That's because I don't refute the claim. I just think Microsoft will end up number two in internet-based applications behind Google.

Microsoft is an extremely smart company, and Steve Ballmer doesn't get enough credit for his brilliance at running a technology company. Microsoft doesn't suck, and it has made it clear that it is taking on the Google challenge whole-heartedly. I'll also confess that I admire few people as much as I admire Bill Gates.

Microsoft faces an unprecedented challenge.

But Microsoft has an enormous challenge ahead. As I said before, Google is a new kind of company, one focused entirely on internet applications, with the brainpower, the cash, and the technology to dominate. It has a revenue model that is a serious challenge to Microsoft. Microsoft has grown rich from selling boxes of software at several hundred dollars apiece, and it must now figure out how to provide free software based on advertising. That creates a huge disruption. Microsoft has never faced a challenge that requires it to move to a completely new business model. Before it can make money from that model, it has to figure out how to sell ads profitably.

Microsoft has lost some of its old advantage

Microsoft has always had an advantage from its control of the desktop OS. It will still have that advantage, but it's not as all-encompassing as it used to be. Google does not rely on Microsoft's OS, as all other desktop apps companies have had to do. And the restrictions put on it from well-meaning but incompetent government regulators means it has to tread carefully.

When Dell Computer announced a deal in which it would pre-install Google programs on up to 100 million PCs, the computer world changed. Dell's success was due, in part, to the fact that it acknowledged the power of Microsoft and never did anything to fight Microsoft. Microsoft told Dell how to configure software and Dell did it with a smile. It got the best prices from Microsofft for that smile. Microsoft's biggest ally has defected. True, Google is apparently paying up to a billion bucks for the privilege, but it can afford it.

And now Microsoft's Brad Smith has made it clear that Microsoft will go easier on other developers, making it easier for PC makers to default to non-Microsoft programs. Microsoft promises to make APIs more open to third-party software developers, theoretically making it easier to create competing apps. Dan Farber at ZDNet has a good list of Microsoft's promises and what they mean.

It's very smart of Microsoft to do this. Its old tactics will not work in the new world, and its new principles indicate Microsoft is backing away from those tactics like a trainer whose attack dog has shifted loyalties. Dropping that crutch will make Microsoft more competitive. But again, that is a big shift in strategy for Microsoft, which had grown somewhat lazy because of the protection its attack OS had offered.

Microsoft has to become a better innovator

Microsoft has also shown that it can develop software along with the best of them--as long as someone shows it the way first. Other companies create a new program, Microsoft creates a competitor that's just as good, and people switch. But don't forget that Microsoft's competitors have then usually chewed off their own legs to get away from the Microsoft threat. They have neglected to keep improving their software, favoring instead to fight Microsoft in the courts, with government regulators, and even to "punish" Microsoft by putting resources into programs for non-Microsoft OS's that never had a chance in heaven or hell. Microsoft then easily overtakes its three-legged competitors.

One company that never fell into that trap is Inuit. It kept its focus on easy-to-use financial software, and Microsoft never caught up. Business Week points out how Intuit has managed to maintain a 74% market share against Microsoft.

Micrrosoft has to learn the meaning of 'ease of use'

And that's where Microsoft ends up as number two. Google is brilliant at making easy-to-use products, which the software industry desperately needs right now. Yes, Microsoft has 'entry-level' products such as Microsoft Write, but they're hobbled, designed (puroposely or not) to get you to want to upgrade to more costly products. The argument that Google's products are not powerful enough just doesn't wash. It never worked against Microsoft's early products. Ease of use is a bigger advantage to Google than most people acknowledge.

Google has passion

 

Google shows every sign that it will continue to improve its products, innovate with new ideas, and (like Microsoft) imitate other good ideas and bring them into the fold. Google is passionate about the power of the internet, while Microsoft is struggling to make the transition because it has to. So far, Microsoft is in a permanent defensive position against Google. That never creates a leader. It just creates a contender.

Defending myself

First, I apologize for not posting over the last couple weeks, just when Robert Scoble linked to my humble blog and brought in some traffic. I had to deal with a family tragedy.

Since I couldn't respond to individual comments as they came in, I would like to explain this blog a little and address my critics.

I'm a journalist who spent 14 years at Business Week, most of it covering Microsoft and other tech companies. In those days I was known as an apologist for Microsoft. I was told that when I said Microsoft would overtake Lotus, Borland and Software Publishing (remember them?) in desktop apps. I was called that when I said Unix had no chance of taking over Windows on the desktop for the forseeable future. I also wrote the first major article saying that Microsoft was starting to throw its weight around to pound other companies, some said unfairly.

Now I'm accused of writing ads for Google. I admit to being a Google fan. The company's stock has quadrupled in two years, and it will probably double again in the next two. Google is bigger than a company. It is a phenomenon. I have not seen a company like this come along since I started covering Microsoft in 1985. And Google will be bigger than Microsoft.

They're two of a kind. Bill Gates saw the invention of the microprocessor and all its potential. He realized that it made personal computing possible, and that it provided a huge opportunity for a leading software company. He went after all the choke points of the fledgling industry and took control of the standards. Everyone with any sense laughed at me for saying Microsoft could challenge IBM. My editors wouldn't let me print such nonsense for years.

Then the internet came along, and everyone saw a new disruptive technology, although few saw it as big as the invention of the microprocessor. It's bigger. It changes the world.

Sergey Brin and Larry Page realized that. They did not create a company out of pure imagination. They realized how the internet works and what could be done with it. Everything they do is designed to exploit the power of the internet and create businesses from it. You laugh at SaaS? Just wait. I see it as analogous to the people who said desktop PCs and software were toys compared to real software. It will come.

Yes, Google's new spreadsheet has many shortcomings. So did Microsoft's early software. People keep gleefully pointing out that Google's non-search apps account for less than 1% of their traffic. Google knows Microsoft's other lesson: Don't give up. It's easier to build up a small product than it is to pare down a big one to fit the new paradigm, and Google will keep working at it until it is a contender. Business Week once said that Japanese cars were tin can jokes that would never take over a significant portion of the U.S. market. Give it time.

The reason I said Microsoft is afraid of Google's spreadsheets and other apps is because Microsoft is a smart company. It knows how it defeated IBM and it sees the same pattern coming from Google. For that reason, I don't think Microsoft will die. I think it will end up in second place to Google. Yahoo and Ebay will merge and die together.

I've seen Microsoft try to do focus groups. And yet it still puts out products that are difficult to use and crash. I use google Search, Desktop Search, Scratch Pad, calendar, spreadsheet, News and other "minor" products and they work. I love them. They do not crash or slow down my computer (except for Desktop Search). Google has beta testers that number in the millions--every time it puts out a beta version.

Yes, I look at the details of what Google is doing and what its products can and cannot do. But the important thing is the big picture. The picture here is as big as the internet. Google is not the superpower here, the internet is. When people used to criticize Gates, he used to say, "Do you think the market for software is coming to an end? If so, then we're in trouble." And then he would laugh. Now Brin and Page can say, "Do you think the power of the internet is coming to an end?" And they can laugh.

Google is entirely focused on what can be done with the internet. And that is a lot. Like Microsoft, they invest in every area that might be an important market, just in case. Not all of them will work. In the 1980s, Microsoft invested in SCO so it would have a unix strategy, just in case.

If you believe in the power of the internet, present and future, name me a company that will be more likely to exploit its power, doggedly and determinedly, pouring all its resources into it. I'd like to buy stock in that company.

FULL DISCLOSURE: I bought stock in Google's IPO at $85 per share. I own no other stock.