Friday, July 31, 2009

Fight of the Grizzly Bears: Microsoft vs Google

The knock down drag out, fight of the Grizzly Bears, Microsoft and Google, is just getting started. The owners of Yahoo shares are not amused.

Microsoft has entered a deal that will send a pile of money to Yahoo over the next 10 years but it will give Microsoft's Bing the tools to stand a fighting chance against Google Search. The concern of Yahoo owners is that it appears that Yahoo has conceded the arena to Google. Google has 65 to 73% of the search market and Microhoo has about 30%. If you have a product to advertise, your ad is twice as likely to be seen on Google Search as it is on the combined Microsoft Yahoo platform. Indeed, if your product is sold in international markets, the odds are even much more in Google's favor. Google is a verb. Bing is a cherry. Yahoo continues to do well with display adds but search provides sellers with the first opportunity to sell.

As the fierce battle between Google and Microsoft continues, in operating systems, browsers and search, the consumer will win and win BIG! The price of communication--computing is coming down rapidly. All sorts of devices are being built with free Google software attached and Microsoft is rapidly lowering its cost of software in order to be more competitive. The cost of wireless connection to the Internet is falling rapidly.

The Amazon and Apple Bears are also engaged in the fight for the sweetest honey. Neither Google or Microsoft can afford to devote all their resources to battling the other. Apple just wounded Google and itself by killing the killer Google Voice app on it's iPhones. Most likely, Apple killed the app under pressure from a big Black Bear named AT&T. Google Voice is a great product and it is being accepted by major carriers such as Sprint and T-Mobile. It remains to be seen if Verizon and AT&T will be forced by it's customers to offer this money saving feature. My attitude is that there is no way that I will buy an AT&T iPhone if it does not allow full and direct access to the web.

Amazon, Google and Barnes & Noble are the Big Bears of books. Hardly a day goes by without a loud growl from one of these Bears or by one of their sloth. Sony, which is certainly not a cub bear, is aligned with both Google and Borders. Sony and Google just announced that 1,000,000 Google Books are now available for free on the Sony Reader. Last week, the Sony Readers offered in Borders stores came with 100 books preloaded. I suppose that deal is the same but that one can now select any of the 1,000,000 Google Books to increase the size of ones free library.

Google continues to force down the price to consumers in one area after another. Amazon pays publishers-authors 35% of book revenues. The Google settlement gives 63% of revenues to publishers-authors! Most Amazon Books are available for $9.99 or less. Most Google Books will be available for $5.99 or less! To some extent, this is a comparison of apples to oranges because Google's 10 million book library is a long tail library, whereas Amazons library, while large and growing at more than 335,000 books, is cut out of the middle of the total book bell curve. We must expect for books within the first standard deviation to be priced higher than the outliers.

The big question about books is how much of an advantage Google will have. It seems that Barnes and Noble, Amazon and others might be able to lock in new books for a year or two but that Google will become the source of choice for the great majority of less popular books. Other niches may hold, for example Barnes and Noble has such a lock on the romance novel business that authors may agree to opt out of the Google program.

About a year ago, Microsoft made the strategic decision to devote its resources elsewhere. I don't think a knowledge search is complete unless it includes books. Google should maintain it's lead in search partly because the body of knowledge held in books is large relative to the knowledge posted on the web. Looking out 5 or 10 years, I would not be surprised if the search market is dominated by Google and Baidu. Baidu has about 60% of the Chinese market, Google has about 30% and Yahoo has about 6%.

Again, the consumer will continue to be the big winner. Knowledge will become more available than ever before and the cost to acquire knowledge will be driven lower and lower in real terms.


HUGE! The paradigm shift we are going through is as significant as the invention and spread of the printing press.

Skeptics do not believe that the Microsoft Monopoly can be broken by Google. They are right! The Microsoft Monopoly is being broken by the sloth (the entire group of BEARS). One bear does not have the power to chase Microsoft off the mountain. Indeed, the point is not to ban Microsoft from the mountain but to force it to share the honey pot. The reason this is important is that innovation has been stifled by the monopoly.

Back in 1984, I was a strong supporter of the break-up of the AT&T monopoly. My Dad retired from AT&T and my Mom is no longer covered by the super wonderful health care insurance of the old days, but it was the right thing to do. When Dad retired, in 1986, a significant retirement benefit he received included free or deeply discounted long distance calls. We often forget how much money the consumer has saved and how much innovation has been possible because the AT&T monopoly was broken. Before MCI was allowed to chew away at the AT&T monopoly, a three minute phone call cost substantially more than one hour of work at minimum wage. Today, minimum wage is up to$7.25 per hour and the marginal cost of a three minute long distance call is quickly approaching ZERO!

Google has done a good job of cooperating with the sloth to achieve common goals; the citizens of the world have much to gain from a more competitive market. Microsoft's 90%+ lock on the browser market has finally been broken because various parties are cooperating while competing at the same time. The drop from 95% to 90% was most difficult, but the recent plunge from 90% to 65% is telling.

As Google and others bring browser based operating systems to market, these systems will be able to compete with Microsoft's expensive Windows products because Microsoft has lost it browser monopoly.

During the past 50 years, most people have been unwilling to admit, even to themselves, how many hours they routinely devote to watching TV. It is not uncommon for the guy who does not watch much TV to spend most of his free time watching sporting events on TV. Political and stock market junkies do not watch TV (except for hours of Fox, CNN or CNBC). Today, there is a steady move away from TV viewing to two way interaction. The sports fanatic is growing more likely to play a baseball video game against a live opponent and less likely to watch a baseball game on TV. The political junkie is more and more likely to discuss politics and less likely to watch politics being discussed.

The way we will communicate in the near future will change the way we live. The change is going to be omnipresent. Each of us will be more in control of interruption by unwanted communication while we will much more actively engaged throughout the typical day.
To bring these changes about, trillions of dollars will be invested. This investment cycle will prove to be the largest ever. In addition to the investment needed to implement the communications changes, there will be huge investments in nono-technology and products derived from genetics research. The future of the world has never been brighter!