If Google Inc. and Microsoft Corp. weren’t already at each other’s throats, Google’s move into the lucrative office market this week has put the two high-tech giants at war.

After much speculation, Google introduced Google Apps – a package that includes its e-mail, calendar, instant-messaging and Web site creation services. Later this year, Google plans to offer word processing, spreadsheet and collaboration tools.

Although pricing has yet to be announced, Google Apps will be sold to corporate users while being free for individuals.

For Google, the launch of a Microsoft Office-like suite is an aggressive strategic move that is part of the company’s efforts to diversify its revenue and profit growth from the ultra-successful AdSense program.

The Office market is enormous so it represents a huge opportunity for anyone willing to take a crack at breaking Microsoft’s stranglehold on the business.

With apologies to Corel Corp.’s WordPerfect business, there is little competition in the Office market. As a result, Microsoft’s Office business made a staggering US$8.3-billion in profits on sales of US$11.7-billion in the year ended June 30, 2006.

Google must look at the business and salivate at the potential for a service that offers the same or better functionality as Office but delivered as a Web-based service as opposed to an expensive software package.

Clearly, it is a colossal challenge knocking off a dominant incumbent or even gaining modest market share. But Google has a chance of being successful because it has a world-class brand, nearly US$10-billion of cash and tens of millions of loyal users.

However, it will be far from a slam-dunk.

Google’s track record beyond search has been, at best, spotty. While Google Earth and Google Maps have been well received, many of its other services (Okrut, Google Talk, Google Video, Google Spreadsheets, Google Base, etc.) have failed to capture the imagination of Web users.

Social networking, for example, is all the rage as evident by the success of MySpace, but Okrut is nowhere to be seen.

Google supporters may argue Google has outmanoeuvred Microsoft in the search engine and paid-search markets. While this is true, Google was an early entrant into markets that did not have a dominant player. The Office market, however, is different.

Meanwhile, Microsoft is pushing ahead with the migration of its traditional software to the Web through its Windows Live program. This will include a Web-based version of Office.

At the same time, Microsoft Office is installed in pretty much every corporate computer. It’s not as if many IT managers are looking for an alternative given Office works well and Microsoft has done a fairly commendable job of introducing upgrades (which, in turn, lead to more revenue opportunities).

With a large customer base and a huge lead, Microsoft has little to be concerned about in the near-term from rivals such as Google, Sun Microsystems Inc.’s OpenOffice, or Web-based start-ups such as Zoho, ThinkFree and Zimbra.

That said, Microsoft can’t afford to be complacent about competition. No doubt, it will do everything it can to educate corporate customers why Office is a superior product to Google Apps. And you can bet Microsoft will make it very easy for large corporate customers to stick with Office with a variety of incentives.

For Google Apps to have a shot at success, Google will have to attack the market from a number of different fronts. With Google Apps being free for individuals, it should be able to make some inroads with people willing to use a Web-based service rather than a software suite that resides on their computers.

For businesses currently using Office, Google may be able to attract users by offering Google Apps as a less expensive alternative. It could also position Google Apps as a tool that makes it easy for people to share documents over the Web.

Needless to say, the war between Google and Microsoft will be a positive for consumers given that competition encourages innovation. The idea that Google is willing to take on Microsoft in the Office market may also encourage other companies to enter the fray.

While there is clearly a lot of excitement about Google Apps, everyone needs to take a deep breath before getting carried away. Given what’s at stake financially for Microsoft, there is no way the software giant is going to let Google grab a foothold without a fight.

This entry was posted on Wednesday, August 30th, 2006 at 11:08 pm and is filed under Linux/Open Source [t], Microsoft Network [t]. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.