Google Search To Surpass Size of Microsoft Windows in 2009

Why is Microsoft (MSFT) so concerned about Google? (GOOG) Lots of reasons, one of which is this: By this time next year, Google’s search business will be larger and more profitable than the most profitable and legendary monopoly in history–Microsoft Windows. (Just Google’s search business–that doesn’t even include AdSense).

Before we go to the numbers, a few important observations.

  • Both products are natural monopolies. Google’s share of the search market should continue to approach Microsoft’s share of the operating system market (90%+)
  • Both products are wildly, fantastically profitable. Microsoft’s Windows business has operating margins of 75%-plus. So does Google’s search business (once you factor out the billions Google is spending on products that produce zero revenue).
  • Google natural monopoly is growing a lot faster than Microsoft’s. Google’s search business should be bigger than Microsoft’s Windows business by early next year (at the latest). Google is also growing faster than Microsoft’s two monopolies combined–Windows and Office. Google has yet to develop a second huge, fantastically profitable monopoly–the Office equivalent–but AdSense is getting there.

(A hat-tip to Richard Waters, who made a similar point in an FT article today.) And now for the numbers:

Quarterly Revenue Q3 2006-Q1 2008


Google’s search business will pass Microsoft’s Windows business by early next year (at the latest). Good thing Microsoft has another huge, wildly profitable monopoly: Office. Add that to the calculation, and Microsoft can breathe easy for a few more years:

Quarterly Revenue Q3 2006-Q1 2008


Of course, Google’s visible in that Microsoft rearview mirror, too–especially now that it offers a product that is directly competitive with Office.

And then there’s the most depressing comparison (from Microsoft’s perspective). After 13 years of heavy investment, frequent doubling down, and–until recently–a browser monopoly, here’s how Microsoft’s online business is doing relative to Google’s search business. Remember:

  1. Google was founded four years after Microsoft launched its online business, and
  2. Microsoft’s search business is just a tiny piece of Microsoft Online.

Quarterly Revenue Q3 2006-Q1 2008


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