In the red corner representing all that is good and sexy with the cloud/t’interweb, lets hear it for Gooo-oo-gle.
In the blue corner representing the grubby reality that most people actually do real work on desktop apps, just back from the 1990’s lets hear it for Microooo-soft.
Lets get ready to r-r-r-rumble….
Google sells ads. Very efficiently. Pay per click puts the onus on the advertiser to improve their conversion rate – but they only pay when people visit their website and see their sales message. (lets ignore click fraud). Google only get paid when people (potential customers) click on ads.
Other forms of advertising like telly, magazines etc are a big up front cost and a hard to measure conversion ratio – expect spend on this sort of advertising to plummet as we move into the depression.
Google ads are highly targeted, and can be managed in real time by the advertiser. Some advertisers, especially the ‘buy x at fleabay’ where x = whatever you searched for type (slaves, syphilis, fail – whatever), will reduce their spend, but many won’t. They will work on their conversion rate, and even if they give away 99% of their margin to google in fees they are still making some profit. At 100% they are still building/maintaining market share.
If advertising spend does plummet Google could sack off the half of its workforce that are working on freetard beta products that generate no cash and maintain its margin without materially impacting its future ad serving business.
I think Google will suffer, but not much, certainly not as much as these guys reckon.
Microsoft makes most of its money from desktop software (1/3 Windows, 1/3 Office, 1/3 all the other stuff they do, much of which looses a stack of cash). Lets just look at the 2/3.
Microsofts business is a big investment upfront in R&D and Dev costs. Those cost are sunk forever and cannot be cut. The ongoing cost is then mainly marketing and distribution, and a bit of support. Meanwhile that big dev cost has moved onto the next version (and next but one).
If customers don’t buy a version of Windows or Office, the vast majority of costs are still sunk, sure they can burn a few less dvds, and save a few pennies on FedEx, and hard to open packaging, but they don’t have much leeway to reduce costs to maintain margin. If they reduce Dev costs (of future versions) they are effectively eating next years seed corn.
Microsoft make the premium office suite, yet O2007 has largely failed to connect with the power user/dev community that should be driving adoption. I don’t think Office 2007 deployments are where they should be by now.
Not many people are claiming Vista has set the operating system world alight either (well Apple and Ubuntu have I guess!).
In a cost cutting world productivity gains is a hard sell. Bosses will be expecting workers just to stay later and be thankful they have a job at all.
I think MS have an uphill battle in the current climate to over-recover their costs (make margin) as they have done in previous years. They have already played a lot of marketing cards so about the only tool left is deep discounts, and that is already happening. As the premium player against strong free/open source competition, a price war is a bad place to be.
In terms of competition who competes with Google on pay per click ads? Ya who? No one is the correct answer. MS paying searchers way more than they earn per click is not a long term strategy, and certainly not a robust one.
Who competes with MS on the desktop? In OS, Apple is doing well at the top end, Linux at the netbook end (and XP in a way). In Office, OOo are claiming 150-200M users, and increasing by 1.8M per week (20-30% of the Office suite market), and thats zero cost, as is sticking with the current version (unless you are on some Software Assurance type annual fee). Sticking with the current at least saves you a big migration cost either to O2007 or OOo.
On the plus side at least they didn’t squander their cash mountain on Yahoo. So they have a decent cushion. And I guess they have the option of hacking off some of the loss making areas.
In summary then (sorry this was so long)
I think Microsoft will get a bigger battering in this recession than Google. I expect more news of more sparkling discounts on MS products, and tactical withdrawal from some markets, in the coming months.
What do you think? And what do you think the impact on us independent devs/consultants will be?
I kind of thought Excel/VBA may pick up as its faster and cheaper than many alternatives, but I’m not seeing that, are you? There does seem to be a bit more Access work around though I reckon.