Google versus Microsoft in the Office

Google has entered Microsoft’s most treasured domain, the office suite. Google offers its Apps for free. Using these Apps, a consumer may prepare basic reports and spreadsheets. Google claims two advantages over Microsoft with its Apps product: it operates on the internet, and it is free or very inexpensive in its premium version. So, what might be the outlook be for both Google and Microsoft?

Microsoft has to worry, but not too much at this stage of the game. Over the last few years, we have analyzed several hundred low-end competitors entering a market against an established industry leader. We found that there are four types of low-end competitors. Google is what we call a Stripper product. It offers less functionality and features for a much lower price. These Stripper products rarely achieve market shares greater than 15%, and often much less. Generally, the savings that the consumer sees in the price of the product comes at the expense of product features and reliability that most consumers do not want to give up. So, assuming Microsoft stands still, Google may get a small market share, but probably not enough to really damage Microsoft.

Of course, Microsoft is unlikely to stand still. It has the ability to put its services online just as does Google. The response to a low-end competitor, though, depends on the specific circumstances of each industry. We found that companies, like Microsoft, need to ask themselves a number of questions in sequence to arrive at the best answer for a low-end competitor.

Of course, Google is unlikely to stand pat either. If Google finds a way to make money with its business model, it is likely to invest most of its profits in improving its product to become a true competitor for Microsoft. This has happened in many industries where low-end competitors achieve a foothold in the marketplace. The motorcycle industry in the 1970s is one example that comes to mind, where Honda became a world class competitor by starting at the low-end of the marketplace and working its way up the market.

One thing to watch over the next year or two is whether any large companies adopt the Google Apps product. Google claims several large companies are testing its service. If these tests prove successful for Google, then Microsoft’s challenge is considerably greater because Google will have the resources to upgrade its product sooner rather than later.

Posted 4/14/08

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