12-Google versus Microsoft in the Office

 

Posted 4/14/08

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.

 

 

UPDATE 060925

Both Google and Microsoft emerged winners in this competition. Google created a new market with unique Function and Price benefits. It then used its substantial customer base to create economies of scale and a profitable business. Microsoft, once it realized the risk it faced with Google, responded effectively to protect its Large and Very Large customer base by matching Google’s benefits and pricing.

On further analysis, Google emerged as an unexpected Next Leader (A competitor or product that offers much better than industry-standard performance for a low price to a specific subset of the industry customers) in the office application market by pioneering a space that others, including Microsoft, had largely overlooked: online collaboration. Initially launching an online word processor with real-time collaboration in 2006, Google gradually expanded its Function offerings, introducing a suite of integrated productivity tools that eventually rivaled Microsoft Office in both breadth and capability. As Google’s suite of apps grew, it began to pose a genuine threat to Microsoft’s dominance, especially as it added compatibility with Microsoft formats, third party services, cloud storage, and seamless file sharing. However, Microsoft responded effectively.

Google’s product strategy emphasized Function innovations to create seamless, cloud-native collaboration. This focus set it apart from all competitors in 2008. Over time, Google integrated additional features such as mail, calendar, chat, intranets, and team websites. By 2016, Google had rebranded its product as G Suite targeted for larger customers and introduced Google Meet and Chat, tightly integrated with its other office tools. In 2020, Google launched Google Workspace, further consolidating its suite and adding new features and third-party service integration. This online collaboration focus paid enormous dividends as Covid massively expanded the market for remote work.

Google employed an aggressive pricing strategy—offering collaboration tools for as little as four dollars per user per month.  Low prices gave it a significant advantage among educational and small business users, because Microsoft offered its products only on a one-time purchase basis. Microsoft fell into a classic Leaders Trap. For a short video describing a Leaders Trap go HERE and see other examples: Leader’s Trap Examples – StrategyStreet.com Google’s cloud-native approach also meant that users benefited from continuous, automatic updates without compatibility concerns. This low price and small customer focus strategy allowed Google to achieve significant economies of scale in the online collaboration market.

By 2013, Microsoft recognized both the potential and the risks of this emerging market and responded by introducing Office 365, its own cloud-based subscription service that enabled online collaboration across the full Office suite. This Function innovation ensured that Microsoft would retain the loyalty of its largest customers, a successful response to the Google challenge.

From 2013 until 2025, Google evolved from being a niche Next Leader player to a formidable Standard Leader (A competitor or product that sets the standard for performance and price in an industry) challenger, pursuing a Silver strategy. See HERE for more on Silver strategies. It competes with Microsoft on nearly equal footing in product features and pricing. Throughout this period, both companies introduced continuous Function innovations: Google strengthened its integrated online collaboration tools, while Microsoft worked to protect its large enterprise customer base by enhancing its cloud offerings and consolidating its cloud products in Microsoft 365 in 2020.

Leader’s Trap Examples – StrategyStreet.com

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THE SOURCES OF STRATEGYSTREET.COM: For over 30 years we observed the evolution of more than 100 industries, many hostile.  We put their facts into frameworks applicable to all industries and found patterns.  Strategystreet.com describes the inductive results of these thousands of observations and their patterns.