I find the ongoing battle between Google and Microsoft to be very educational (and honestly, very entertaining). It is obvious that the companies are becoming more and more alike. They have similar strengths and weaknesses which tend to surface in different contexts and are now beginning to overlap each other.

Both companies are monopolistic and earn incredible amounts of money by using their respective powerful positions. Both share the same problem (a problem I’d sure like to have :-)), which is, trying to find new markets able to guarantee a continuous increase in sales and revenue.

On one hand, we have Microsoft with its operating systems and office applications, and on the other, we have Google with its search engine. Both companies have reached such a high level of market penetration that they can only, inevitably, go down from here (actually, this consideration is especially aimed at Microsoft, but it might just be a matter of time before the same thing happens to Google).

Both Microsoft and Google continuously strive to add new functions to their cash cows, unfortunately the end results of these efforts are not very significant. Just look at the negativity surrounding Vista (many users continue to prefer Windows XP, even if it is eight years old) and what about Google – there haven’t been any real innovations in searches for years (in fact, it seems that Google’s functions are getting worse by the day). It is also difficult to convince people to switch over to the new version of Office, even if it is better than its predecessor; 95% of users claim that it doesn’t really provide anything new or more efficient. I think this a perfect example of how, in many sectors of software development, we have arrived at a sort of plateau: the returns on investment for new and improved products are always less and we are getting to the point that it is becoming very difficult to justify such investments.

It must also be said that software houses are also “doomed” to keep releasing new versions, because unlike other products, software doesn’t break, isn’t prone to wear and tear and isn’t influenced by the latest fashions. The problem with new releases is that they often require a lot of time and resources, however, they don’t give significant improvements in return.

The prospects for key products like Word or PowerPoint are slim, and Google isn’t doing any better. The fact that Google is releasing immature programs like “Google Squared” and programs for a very limited user base like “Google Timeline”, shows that if no real changes occur on the scene, there will be no space left for innovations which are actually efficient.
Thus, Google has been trying to gain market share in Microsoft’s territory with its efforts to make applications such as Office useable online and by combining the browser with the Google Chrome operating system. Likewise, major investments by Ballmer and associates are aimed at taking away the market share from Google’s search engine (with Bing, its predecessors and its future successors).

Even the efforts not directly aimed at the enemy haven’t been very successful: for example, Google, which up until  2-3 years ago seemed an invincible juggernaut, has recently produced more failures (Google Base, Knol, Video and Google Print Ads) than winners.

Having said this, I realize that these software giants are constantly under pressure by the international financial community to keep growing, and deciding what to do is not an easy task.
If they reduce the investments in their operating fields, they are accused of not taking the future into account and therefore risk being wiped out in the short term; if instead, they decide to diversify, they are accused of a lack of focus on the core business and of putting their otherwise guaranteed sales and profits on the line…

Just like in politics, it seems that there is no valid third option…I believe however, that a third option does exist and that it would be very simple and beneficial for the rest of the market. Microsoft and Google should lower their prices (Google is free for the common user, but the companies that advertise on Google’s network, pay staggering amounts of money). This way, resources would be free for all other market players, which could then invest efficiently and produce valuable innovations, even in other sectors. For the ecosystem which gravitates around these two giants, it would make more sense to free up the money that currently goes towards dead-end investments in order to get out of this vicious cycle which halts innovation and market growth.

If Microsoft and Google are not willing to take this step, there is another, extremely simple alternative: they could distribute la majority of their profits to their shareholders, the real owners of the companies.

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