The New York Times just published an article by Steve Lohr and Miguel Helft on Google vs. Microsoft entitled, "Google Gets Ready to Rumble with Microsoft." While I was quoted in it--"A recent report by the Burton Group, a technology research firm, concluded that it was 'unclear at this point whether Google will be able to capitalize on the trends that it’s accelerating.'”--there were a number of my quotes left on the cutting room floor. So I thought I'd add them back in via my blog.
Back on December 4, Steve Lohr talked to me and Ken Anderson (an analyst in our Executive Advisory Program) for 45 minutes on our views about Google vs. Microsoft. I was on the phone due to my August report on Google Apps, and Ken was on the phone because he used to be the CIO at Google. Steve quizzed me on Google's strengths and weaknesses in the enterprise space, and pressed Ken to divulge some good insider stories (happily, Ken held firm).
Some of the quotes I tossed into the conversation with Steve were:
"Enterprises are eager for an alternative to Microsoft Office because they feel Microsoft is charging them an arm and a leg"
Back in the spring my phone rang off the hook with calls from clients asking about the viability of Google Apps, Premier Edition. After the first few calls, I could predict how the conversation would go: "Man, we would love to get Office capability for $50 per user per year: how real is its capabilities?" Google had figured out the hook beautifully: given how many information workers there are, enterprises are paying a lot of money for Office. Several months ago I talked to a Burton Group client who was thinking of upgrading to Office 2007 and calculated the price at $500 per user (a combination of the license cost and training for the new UI). Given that they have 60,000 employees, that's a bill of $30 million. The last I heard, they weren't upgrading.
What makes the fees especially galling is that hardware prices have dropped like a rock. At this point, the combined fees for Vista and Microsoft Office (which given that they came out at the same time, this is often how enterprises think of the problem) are often more than the price of the PC hardware.
Whenever I bring this up with Microsoft, they note, "But it is cheap--look at the Home and Student Edition"--which of course, enterprises can't buy. Microsoft clearly understands the value of pricing--Encarta flew off the shelves more than a decade ago when Microsoft decided to break into the encyclopedia market and charged around $100 for the CD (everyone else was charging $200-$500). SharePoint 2007 is another example, which is much less expensive than the best-of-breed content and collaboration packages. True, it's also easier to use and set up, but its pricing is a factor.
If Microsoft dropped the price of Microsoft Office, it would be a game changer--but so far, they're standing firm.
"With enterprise software, the devil is in the details, and Google often doesn't worry about the details"
Google Apps, Premier Edition shipped without an API for Google Docs, the ability to assign roles for users (making admin easier), a viable records management story, and a few other glaring holes. Google is working to fix these gaps (for example, it bought Postini, which improves the e-mail records management story, but doesn't do a lot for documents) but it all comes across as an after-the-fact pastiche effort, rather as a deep understanding of how enterprises work. There are a lot of process and regulatory details that go into rolling out software to enterprises with 60,000 workers, and Google's quick iteration, "let's toss it out and see what sticks," mindset is better tuned to the consumer space than the enterprise space.
In fact, the story told in the article about Google's development speed (Grand Prix, cellphone software that an engineer put together in six weeks) highlights the point: "In the brief development, there were no formal product reviews or formal approval processes." This quick development process works fine for a consumer cellphone product, but breaks down when building software for regulated enterprises, who have to use certain file formats, must audit certain behavior, and so on. This is a sliding scale: small and medium-sized businesses often don't have these constraints, which is why Google Apps has been somewhat popular in that sector. But it's a mistake to assume that because Google Apps has been adopted by SMBs or a large university (Arizona State, which is getting it for free and has Google handholding it every step of the way) that large enterprises are about to buy as well.
Dave Girouard was quoted awhile ago that "dozens" of large enterprises are using Google Apps (notice he didn't say "hundreds" or "thousands"). According to the article, Girouard predicts that 2008 will be the breakout year for Google Apps in the enterprise--however, by then, companies like Adobe, Cisco (via its acquisition of WebEx), Microsoft, Salesforce.com, and Yahoo! (via its acquisition of Zimbra) will be shipping competing, and in many cases, more functional, products.
"It took electricity 60 years to move to the cloud model; why should software be any different?"
Steve asked me about Eric Schmidt's assertion that the cloud (and hence Google) can handle 90% of today's computing tasks. My answer was, "Maybe in the next 30, but not in the next five." This response is colored by what happened with electricity in the late 1800's. Edison invented the first long-lasting incandescent lamp in 1880, but it wasn't until 50 years later (1930), that 80% of businesses and 70% of homes were electrified in the U.S. And it was really only in the 1940's and 1950's that the numbers climbed into the 90% range.
If you look at the electricity adoption curve, it mimics what is happening now. People made their own electricity for the first 30 years. It was only in 1910, when Samuel Insull began creating electricity holding companies, that businesses and people decided it was easier and cheaper for someone to take over the task. If you figure usable PCs were invented in 1975, we're about 30 years into a 50- to 60-year adoption cycle. People move a lot slower than technologists want them to; that's why I think Microsoft's "software and services" viewpoint is the less exciting but more sensible one.
So there you have it--some of my elaborations on the Google vs. Microsoft story.