Saturday, December 15, 2007

Google Gets Ready to Rumble With Microsoft

A CEREBRAL computer-scientist-turned-executive, Eric E. Schmidt has spent much of his career competing uphill against Microsoft, quietly watching it outflank, outmaneuver or simply outgun most of its rivals.

At Sun Microsystems, where he was chief technology officer, Mr. Schmidt looked on as Scott G. McNealy, the company’s chairman, railed against Microsoft and its leaders, Steven A. Ballmer and Bill Gates, as “Ballmer and Butthead.” During a four-year stint as chief executive of Novell, Mr. Schmidt routinely opined that it was folly for any Microsoft rival to “moon the giant,” as he put it; all that would do, he argued, was incite Microsoft’s wrath.

Then, six years ago, Mr. Schmidt snared the C.E.O. spot at Google and today finds himself at the helm of one of computing’s most inventive and formidable players, the runaway leader in Internet search and online advertising. With its ample resources and eye for new markets, Google has begun offering online products that strike at the core of Microsoft’s financial might: popular computing tools like word processing applications and spreadsheets.

The growing confrontation between Google and Microsoft promises to be an epic business battle. It is likely to shape the prosperity and progress of both companies, and also inform how consumers and corporations work, shop, communicate and go about their digital lives. Google sees all of this happening on remote servers in faraway data centers, accessible over the Web by an array of wired and wireless devices — a setup known as cloud computing. Microsoft sees a Web future as well, but one whose center of gravity remains firmly tethered to its desktop PC software. Therein lies the conflict.

But in a lengthy interview at Google’s campus here, Mr. Schmidt, 52, follows past practices. He soft-pedals. As he coyly describes a move that most of the industry views as Google’s assault on Microsoft, he does his best to say that it is something entirely other than that.

No, he says, there was no thought of a Microsoft takedown when, earlier this year, Google introduced a package of online software offerings, called Google Apps, that includes e-mail, instant messaging, calendars, word processing and spreadsheets. They are simpler versions of the pricey programs that make up Microsoft’s lucrative Office business, and Google is offering them free to consumers.

Still, Google Apps aren’t anything other than a natural step in Google’s march to deliver more computing capability to users over the Internet, Mr. Schmidt says.

“For most people,” he says, “computers are complex and unreliable,” given to crashing and afflicted with viruses. If Google can deliver computing services over the Web, then “it will be a real improvement in people’s lives,” he says.

To explain, Mr. Schmidt steps up to a white board. He draws a rectangle and rattles off a list of things that can be done in the Web-based cloud, and he notes that this list is expanding as Internet connection speeds become faster and Internet software improves. In a sliver of the rectangle, about 10 percent, he marks off what can’t be done in the cloud, like high-end graphics processing. So, in Google’s thinking, will 90 percent of computing eventually reside in the cloud?

“In our view, yes,” Mr. Schmidt says. “It’s a 90-10 thing.” Inside the cloud resides “almost everything you do in a company, almost everything a knowledge worker does.”

Mr. Schmidt clearly believes that the arcs of technology and history are in Google’s corner, no matter how hard he tries to avoid mooning the giant. Microsoft, of course, isn’t planning to merely stand still. It has spent billions trying to catch Google in search and Web advertising, so far without success. And the companies are also fighting it out in promising new fields as varied as Web maps, online video and cellphone software.

“The fundamental Google model is to try to change all the rules of the software world,” says David B. Yoffie, a professor at the Harvard Business School. If Google succeeds, Mr. Yoffie says, “a lot of the value that Microsoft provides today is potentially obsolete.”

At Microsoft, Mr. Schmidt’s remarks are fighting words. Traditional software installed on personal computers is where Microsoft makes its living, and its executives see the prospect of 90 percent of computing tasks migrating to the Web-based cloud as a fantasy.

“It’s, of course, totally inaccurate compared with where the market is today and where the market is headed,” says Jeff Raikes, president of Microsoft’s business division, which includes the Office products.

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