Everyone crowing about how Microsoft “won” the Facebook deal is missing two points: First, Microsoft didn’t really win much. Second, Microsoft has bigger concerns than whether it will eventually be able to compete with Google in online advertising.
The only thing you usually get out of Analyst Days are interesting asides, and, as the WSJ notes, one of the ones that slipped out of Google CEO Eric Schmidt’s mouth yesterday (intentionally, obviously) was this:
“We’ve seen some evidence that [Google Apps] is having a moderating impact on prices.”
Given that Google Apps compete with exactly one company, Microsoft, there’s no doubt about who Schmidt was referring to. Microsoft would presumably vehemently disagree, but the effect is logical: With Google charging $50 per head for Apps versus several hundred per head for Microsoft Office, it’s not surprising that companies suddenly have negotiating power.
We’ve argued in the past that Google Apps is a disruptive technology: a cheaper, more convenient low-end product that meets the needs of basic users competing with a bloated, expensive product that has long since exceeded the needs of the mass market. As Clay Christenson’s book (Innovator’s Dilemma) makes clear, incumbents trying to fend off disruptive technologies usually don’t fare well. To protect their prices, they retreat toward the high end of the market. Meanwhile, the disruptive product continues to add features and functionality, and, in the end, gains so much share that it becomes the standard.
Those who argue that Microsoft Excel is “still better” than Google Spreadsheets are not wrong. Excel is still better. It’s just that it’s current “better-ness” doesn’t matter. Why? Because the superiority is irrelevant to many users, who are happy to embrace the free, convenient, and collaborative functionality of Google Spreadsheets.
Yes, Google’s current impact on Microsoft’s core business is immaterial. Yes, it will take a long time to become material, let alone devastating. But especially given the glacial pace with which Microsoft is taking to respond, what is today a trickle will likely become a flood.
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