Google's attempt to push its online applications to businesses by deepening its relationship with CRM specialist Salesforce.com attracted a lot of interest recently, but it's still not clear how many companies are prepared to trust their mission-critical data to hosted applications.
The two companies first teamed up in June last year when they jointly launched Salesforce Group Edition. The deal enabled Salesforce customers to display their adverts on Google.com when relevant search terms were entered onto the site and to distribute advertisements using Google AdWords.
But the partnership was taken a step further earlier this month, with Salesforce integrating its CRM software with various Google offerings including Google Apps, Gmail, Google Calendar and Google Talk instant messaging (IM) packages.
Google email or IM messages can now be added to Salesforce CRM-based records and, from Google's point of view, the move is clearly intended to boost uptake of its services by businesses.
While the basic service is free, organisations looking for more functionality can sign up to Google Apps Premier Edition, which charges a subscription. This attempt to woo paying business users is important, according to Tom Austin, head of software research at Gartner, as Google could be at risk of entering into "an era of profitless prosperity".
"[With] everything Google does for free, where does it make its money? About 98.5 percent of it comes from advertising at the moment, but I'm reasonably sure that Google doesn't get much ad revenues from Gmail and Google Apps, although a lot of people use them," Austin said.
Instead, the company still makes the majority of its money from keyword searches which, according to David Card, a senior analyst at JupiterResearch, means that "it's still pretty much a one-trick pony" — one that presumably, over time, will need to broaden its revenue base to maintain growth.
In the short term, at least, Austin said he does not expect Google's hosted productivity applications to replace Microsoft's equivalent, paid-for offerings, such as Office. "We see them co-existing. People will wind up using both. In many cases, that's already happening, but not via enterprise purchases. It's via the independent actions of individual users and groups of users," he said.
A Gartner survey that was undertaken in March and is due to be published this quarter indicates that, although Microsoft's collaboration and workplace technologies are used by about 89 percent of the 360 enterprises questioned, three other vendors more or less share second place as supporting players: Google, which has 50 percent penetration; Cisco, which has 51 percent; and IBM, with 48 percent.
About six percent of IT staff surveyed use some form of Google application at least hourly, while 33 percent do so at least once a day. This, said Gartner's Austin, indicates that there is already "a surprising degree of penetration — as a secondary application, supplementing, not replacing but competing for usage cycles with Microsoft Office".
On the basis that "Google is succeeding via the actions of users not IT managers", Austin said he expects that, within five years, "a majority of enterprise users will use some Google apps for work purposes, whether IT endorses it or not".
Most IT departments are not ready to sign up for offerings such as Google Apps Premier Edition just yet, even though they are aware that personnel are using Google Apps and Gmail on the job, added Austin.
However, although the number of informal users of such services is set to continue growing, Austin was also not convinced that, in the majority of cases, this will result in...
...knocking Microsoft Office off the desktop. Instead, a more probable scenario is that it will drive down the cost of Office.
This is not least because any move towards replacing email and applications technology is likely to take a decade or more. As Austin pointed out: "Companies have a lot of sunk costs and individuals have career investments [in them]." Yet he expressed a belief that "Google's opportunity is through the user community" and, as such, poses an undoubted threat to Microsoft.
"Google is trying to push down to the device. It doesn't want to compete directly with Microsoft or to kill Office, but it's going to push logic down to the device. It's why Google is building Android, [an operating system] for mobile applications. The goal is to ensure an optimum way to deliver information services from the cloud," said Austin.
Google's provision of cloud-based services or hosted applications applies to both consumers and enterprises and, as time goes on, will also include a range of vertical market offerings. First on the agenda is healthcare, followed by accounting services for the low end of the market using Google Checkout, but others are also expected to emerge over the next three to four years.
Visions of a mobile future As for the growing importance of mobile, Eric Schmidt, Google's chairman and chief executive, signalled this at his Nasa 50th anniversary lecture in January this year. He said that, in 10 years' time: "Devices will be 100 times more powerful than they are now and there'll be ubiquitous wireless broadband and [mobile] phones for all. How we can take advantage of that is an interesting question."
Interestingly, Microsoft has a similar vision of the future. The software giant believes mobile devices will become the new PC in as little as five to eight years. But the fact these devices are likely to be much more powerful than they are today, with multiple CPUs included on a single chip, generates a problem.
"Microsoft is asking: 'How can we take our model, which was always built on a single CPU, and re-architect our software so it works in a signal box with hundreds of compute engines?' So Microsoft is coming at this issue from the bottom up and Google from the top down," Austin explained.
The fact there is still no dominant software platform in the mobile world means it will undoubtedly become a key battleground for the two players. The situation will only be exacerbated by the fact that, as such devices become more ubiquitous, they are also likely to become more important in terms of advertising -- an area that, again, both companies are keen to control.
Austin said there is more to it than simply a battle for control of the mobile space. Instead he posited that this situation is more "a battle of visions and business models, and then it becomes a battle of two camps of very smart people, each anchored in their own history".
On the Microsoft side of the fence, the vision was, and still is, that of democratising software and making it so cheap that everyone buys it from one vendor, which can then raise the price. "Microsoft has done a wonderful job of advancing the PC-centric, device-centric view of the world. Its vision was to democratise micro-computers due to economies of scale, commoditise hardware and provide competition to draw down the price to the greater glory of Microsoft -- all of which it has achieved," Austin said.
Google's desire to push a cloud-based computing model in order to democratise information is potentially...
...highly disruptive to Microsoft's approach because, in Google's world, the device does not matter.
"Eric [Schmidt's] vision isn't really about 'the network is the computer', it's more about 'information will make you free'. Information should be a service on whatever device you exploit and be available and work wherever you are, which means the boundaries are arbitrary," explained Austin.
So, while in the Microsoft domain it is necessary to purchase a software licence and know where content is stored in order to move it from one device to another, in the Google space it is all about a "grand utility in the sky" which seamlessly provides information to those who want it, no matter what the device.
However, Google's philosophy isn't simply a flash in the pan and, in practice, has been some years in the making. Schmidt had already developed his vision of the future when he was chief technology officer at Sun and "that's what is playing out now in many ways at Google", said Austin.
Schmidt spearheaded Sun's Java-development efforts before leaving to join Novell as chief executive in 1997; both vendors were renowned at the time for their repeated but unsuccessful attempts to take on and present an alternative to the Microsoft powerhouse.
As a result, said Austin, this new scenario with Google is, to some extent, "Eric's revenge", although the focus is not necessarily to compete directly with Microsoft: even if that is the outcome and by-product of the company's vision.
In order to realise that vision, Google has built five highly redundant distributed machines, based on open source software, to act as "giant cloud engines" or "a compute engine to run all over the world". These servers process information and make it available to anyone who wants to use it via the medium of search, using whatever device they chose.
Open, scaleable, extensible platform
The key buzzwords for this scenario, said Schmidt, again in his Nasa speech, are "openness", "scalability" and "flexible architectures". "With internet models, you build on end-to-end connectivity. This means you make the platform such that it's the simplest one possible that people can build on top of, so that they build open systems not closed ones," Schmidt explained. "You don't try and solve all the problems now. You want to develop an extensible platform [to ensure that it is still valid in a future as yet unknown]."
This open, scaleable, extensible platform is based on open source software and standard protocols to enable people and things to collaborate and talk easily to each other and to ensure that "multiple vendors have a common substrate of communications". This, Schmidt said, in turn leads to "a much greater chance of creating something such as the internet, which was designed for one thing but becomes something else even more powerful and valuable".
"Google is a platform company in the same sense Microsoft uses the word 'platform'. This means that it's created core technology and services that others build on. The business is to create platforms to make money for themselves and to build up an alternative ecosystem [to Microsoft]," Card explained.
While providing developers with application programming interfaces (APIs) that they can build packages to, Google has added the appeal of enabling them to plug into its services and tap into its advertising revenue stream. "It was a really cool idea and Microsoft went 'Woah -- that's an instant way to make money'. They can use your mapping or search capability on their site, and you let them sell ads on it and take a cut. It was one of its major innovations," Card said.
However, in the same way Microsoft and Intel "made most of the money from PCs themselves", according to Card, Google, despite its apparent philanthropy, still generates...
...the majority of its revenues from serving adverts to its own sites and, as a result, is still growing faster than its partners.
"A lot of people talk about network-effect markets. So the more people use a platform, the more valuable it is. This lends itself to the idea of 'winner takes all' as, if there's one set of standards to program against, the platform grows faster because you don't need anyone else," said Card.
For Google, however, the aim is not so much to become a software giant as to provide users with an easy means of accessing and using online content -- hence its decision to set up the OpenSocial Foundation with Facebook and Yahoo. The goal is to develop a common API that will enable social networking application users to share information across multiple websites more easily than is now possible.
Rebecca Jennings, principal analyst at Forrester Research, explained the rationale: "Google has a vested interest in getting people online and sharing information as much as possible. It wants you online because you see advertising and, if you're using its software, you're more likely to use other services it can also generate money from."
Google can make money from many of these add-on services because they carry, or will carry, advertising themselves; the ones that are not suitable vehicles to do so will be offered as part of a broader suite.
At the same time, however, Jennings indicated that Google is also building databases that aggregate user behaviour in relation to advertising, against which it uses predictive analysis technology in order to improve contextual targeting.
"It's not about selling database lists in the old sense. It's about: when I launch a new product, the network can say where the users will be to whom I can target my advertising most effectively. So people will go through Google to do their advertising and Google can do it the most effectively as it's the best at analysis and knowing what people are doing online," Jennings said.
Extending the Web-advertising platform The importance of advertising to Google is not going to diminish any time soon, as evidenced by its purchase of DoubleClick last year. The move was an acknowledgement of how important advertising is to Google's business. It also represented the need for Google to diversify out of Web-based advertising -- where the company still makes the vast majority of its money -- into other more sophisticated areas, such as rich-media display, which is more formatted and targeted, and an area in which Microsoft is currently ahead of Google, in terms of penetration.
Such a rationale is also likely to see Google dabbling in other areas, such as video, TV, radio and print, in order to extend its advertising platform reach still further.
Nonetheless, despite its astute manoeuvring, Google is unlikely to have everything its own way. As Card pointed out: "[Google's] still pretty much a one-trick pony" and has made little progress in making money from other services, which, presumably, over time, it will need to do in order to maintain its revenue growth.
On a practical level, it also needs to integrate DoubleClick, which, said Jennings, "with the size of that acquisition, will be a big challenge", especially if it is to continue keeping "ahead of Microsoft by developing products very quickly and having a culture of 'try it and see'".
Moreover, Google will also not be immune to the questions that are already being raised around privacy or to the ability of Microsoft to fight back, as evidenced, for example, by its attempted purchase of Yahoo.
As a result, Austin acknowledged that it is not yet clear how this scenario will play out. What he did say, however, is that Google "feels like the Microsoft of the 1990s -- which is both positive and derogatory".
"People said that PCs would kill the mainframe but IBM is now selling more mainframe MIPs than ever, and this is the same kind of battle," said Austin. "The beauty of it is, however, that there's more real, intelligent competition that will deliver real benefits to the market than there's been in a long time".
Google would not comment for this article.