MSFT versus GOOG - there's a big gap

MSFT versus GOOG - there's a big gap

Summary: Microsoft's financial report shows it would take Google more than 3 years to catch up to in revenues. Google needs to diversify.


Microsoft is facing many challenges but it is still an incredible cash machine. Revenue for its first fiscal quarter, which included deferred revenues of $1.47 billion was $14.39 billion, a slight decline of 4 per cent compared with the year ago period. Operating income was $4.48 billion.

Many industry pundits like to compare Microsoft with Google. GOOG reported revenues of $5.94 billion and operating income of $2.07 billion in its most recent quarter.

At a rate of revenue growth of seven per cent per quarter, a rather generous growth rate, it would take it more than 3 years to reach Microsoft's current quarterly revenue. it would take it more than 3 years to reach Microsoft's current quarterly revenue. There is a lot that can happen over the next few years in terms of Microsoft's competitive position against Google.

Microsoft can patiently build up its search services and other areas where it lags Google. And it will continue to generate large revenues from its business software -- a tiny market for Google.

Can GOOG continue to grow its search business to nearly $13 billion per quarter? What other businesses does it have that could generate comparable rates of growth and revenues? None.

Microsoft has many different business groups that have the potential for growth and it is building up its Internet business groups to better compete with Google. MSFT is a much more diversified business than GOOG.

While it is fashionable to talk about the demise of Microsoft and its poor competitive position against Google, the fact is that it's still going to be around for a long time and it will continue to be a potent, cash-rich competitor for many years.

Google can't grow fast enough organically, it will need to make some acquisitions to generate revenues and give it some of the heft that Microsoft already has. It needs to have a more diverse business base. Google has only one main business - text ads next to a search box or on a 3rd party web site.

What type of acquisition could help it be more competitive against Microsoft? What about a telco acquisition?

How about AT&T [T]? Its third quarter revenues were $30.9 billion. Its market capitalization is about $150 billion compared with GOOG at $175 billion.

AT&T would give Google a powerful position in terms of the net neutrality debate, and also in wireless markets, providing it with a key position with respect to both Android and iPhone phones.

And it would give Google a direct billing relationship with a huge number of US households. There are a ton of services it could introduce and without dealing with the telcos and their walled gardens.

Google's ability to build large server farms would further boost the types of on-demand services that it could market to consumers, and more importantly, to business users.

AT&T would be a big pill to swallow but strategically, it makes a lot of sense, imho.

Topics: Microsoft, Banking, Enterprise Software, Google

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  • Countering Google

    [i]At the current rate of Google?s revenue growth, 7 per cent, it would take it more than 3 years to reach Microsoft?s current quarterly revenue.[/i]

    The above is true if you assume MS will have no growth over the next 3 years. I don't think that will be the case. Further, I believe MS can significantly disrupt Google's growth by disrupting the growth and importance of the browser. I believe MS can do this by encouraging the development of several competing platforms. These include readers for books, newspapers, magazines, and platforms for audio, and video content. I think all MS has to do is make the case that in as much as businesses of all types make money by creating various walls (branding, physical, standards) most companies will do better if they create walls against the value sucking influence of the browser - which Google basks in and thrives.

    Going after Google with Bing is all nice and good for MS, but disrupting the browser would shake Google at its core, and stave off the threat of the browser to its own desktop business, as well as a slew of other businesses - from newspapers to OEMs contending with profit shrinking netbooks.
    P. Douglas
    • wrong strategy

      For most people, google technologies are far more important and useful that the OS itself. If I give the choice to my mother, Google or Windows, she will left behind the second... not that she like Windows, you now what I mean!
    • I agree...

      I was trying to pick the most conservative scenario. But yes, MSFT has
      way more options to go forward and is much more diversified which is a
      healthier position.
    • Bingo!

      Not merely bing.

      I believe the "disrupting the browser" strategy
      is evident in the Silverlight push.

      While Silverlight does indeed run inside a
      browser (for the time being) it circumvents
      many of the inherent problems with JavaScript
      and html (speed, connectivity, hardware
      (video/audio) acceleration, project scalability

      Microsoft will drag their feets on IE and not
      advance new standards (such as html5) too fast.
      That will position Silverlight as a potent add-
      on which will enable far more advanced apps
      than just the browser. Even though IE is losing
      market share, it will be years (decades?)
      before anyone can simply ignore it.
  • the gap is shrinking quickly

    given the red ink that awaits M$ next year, 3 years to catch up is too pesimistic.
    Linux Geek
    • Please don't feed this troll (nt)

      • Every place needs a court jester

        and it looks as though Linux Geek is it :)
        John Zern
  • Alliance

    1. Google indexing ...
    2. ... music, film, 'newspapers' (sorry) ...
    3. ... advertising ...
    4. ... supplied with your telecomms. and ISP package.

    My Digital Global Emporium, legal Pirate Bay so to speak.

    The government would have to step in and offer the same to Microhoo and say an IBM and an Oracle consortium. Then we wouldn't repeat what happened to the library at Alexandria, Zacks' data or Sidekick messages :-(
  • Relevance

    Why are current revenue/income number comparisons even relevant?

    MS has been stagnating for years and has yet been able to come up with a strategy to grow its business outside its traditional cash cows. Virtually every new MS venture is losing money. Its $10B/yr research expenditure does not seem to be able to create much in the way of future revenue. Google, with the cooperation of others, is well positioned to slowly help bleed MS to death. It does not matter if it takes years.

    With Ballmer at the helm, MS lack strategic vision. The (rest of the) world is increasingly turning to open source. Taking on AT&T would be a HUGE gamble for Google, like betting the company on a business they do not know much about. Recent history is full of examples of ill advised takeovers.

    My advice: Don't touch AT&T, just keep doing what you are doing, including Chrome and Android. If you can severely weaken your competitors over time, why the fixation on trying to outgrow them by taking huge risks?

    A bit of a ramble, I know, but my 2 cents worth.
    • All good points, there are lots of things that can happen over the next few

      years. The biggest thing is that there will be
      a blizzard of low cost internet devices, based
      on Atom and Arm. People will more and more
      want to be able to access applications and
      data from anywhere, and that has the potential
      to drastically reduce the price that Microsoft
      can charge for operating systems and office

      So, if Google is to catch up with Microsoft,
      it will most likely be because of Microsoft
      revenues falling that Googles rising.
      • But that's the problem

        Google's revenues aren't rising as fast as they did, in a sense they are hitting the plateau in search. You point out all the time that that Microsoft's search share is growing slowly, but then, so is Google"s

        And to think there will be a "blizzard of low cost internet devices, based on Atom and Arm", well thats a big "if" to base a future on.

        Who is actually replacing a computer with a mobile device? .0000005%? Not much of a future.
        They'll compliment it, yes but never replace it.

        Both MS and google are money machines, it's just that MS's products have a wider profit margin.
        John Zern
    • Yes, keep doing the same...

      But it's not enough. Having just one main business makes Google very
      vulnerable. MSFT is way more diversified and can go after Google in so
      many ways so can others, it's not just MSFT versus GOOG.
      • I agree

        [i]Having just one main business makes Google very vulnerable[/i]

        And that's the problem. While MS has competitors that make OS's for destop, servers, mobile devices, and Office products, they are different enough that many won't see the need to switch.

        With search, all it takes is the next good search algorithm from another company, and switching won't cost the user anything.
        John Zern
        • Google is more than just a search algorithm...

          The real advantage Google has is that it's infrastructure
          can scale like no other, nobody even comes close. The
          other is it's agility. It can do in months what MS does in
          years. When they realize they made a mistake, they turn
          on a dime and go into another direction. MS cannot do
          that, they are tied to their client model and backward
          compatibility, which is like a giant boulder they have to
          drag along...
  • Talk of Google passing Microsoft is very premature. You should be talking

    about when Apple will pass Microsoft. That could be a lot sooner
    if Apple can double their Market share with both the Mac and the
    • Apple...

      Is in a different business. But there is some overlap and there wil be
      more. I fully expect an Apple branded search service.
      • Apple branded search service?


        Search requires actual technology, not just a pretty piece of hardware...
    • Apple is NOT interested

      While they wave a flag, they are extremely reticent to charge, as it would involve an extreme challenge to their business model.

      It's easy to be brash and impulsive at a 10% market, but 70-90%, and USED to it, playing ball is a large part of the game.

      But Apple does not like to play ball. It wants to CONTROL, which is something that will not rub in markets that are part of a huge ecosystem.

      Apple controls the iPhone and iPod ecosystems, because they are push markets fed solely by Apple.

      While MS is at 90% of the OS market, it does NOT control it, but is largely at the mercy of corporates and their long procurement cycles and the large OEMs. Majority OS is a pull market, something Apple is NOT culturally set up for.

      In a pull market, buyers want flexibiliy and some measure of control over their assets. MS would not have got to where it is if they restricted Windows to only hardware they made. They offer long support cycles, multiple hardware support and all the problems that we know that brings, and tools for enterprise management and control of computers - all to cater for customer needs.

      A niche computer market and 'whim spend' devices allow Apple to call the shots, but the latter especially exposes them to the high risk of consumer fickleness, which could easily see their customer base eroded if another company comes out with disruptive 'whim spend' device, that supercedes their own devices.

      This puts a lot of pressure on Apple to short-term innovate. They compensate this by milking their markets by staged technology releases. After all, the capabilities of the latest iPhone could have been available from the start, but it would have meant Apple would have had to come up with a totally breakthough device once the iPhone reached saturation.

      In short, Apple is NOT a team player, which is what majority markets require.
      • Apple...

        Apple's products cost 30% more than the competition,
        yet, in mids of a recession, they had their best quarter.
        They sold more Macs, iPhones and iPods than ever
        before. I would say they are doing something right.

        As for the "short term innovation", you've got it all
        wrong. Apple has always been about innovation. They
        reinvented the music business with iPods and iTunes.
        They reinvented the smart phone business with the
        iPhone and the App Store. They have the best
        computer user experience with their Macs.

        The consumers know it and are willing to pay a
        premium. Apple does good products...
    • But that's not relevant as

      Microsoft is a software company, Apple a consumer electronics company (hardware)

      There are already alot of hardware companies out their bigger then MS.

      Apple doesn't earn the lion's share of their money from software (or computers) so comparing Apple to Microsoft is like comparing Mitsubishi (or Hyundai) to Ford because they both make cars.
      John Zern