Microsoft Struggles To Face The Google Threat

The line between Web-based applications and their inside-the-firewall counterparts is getting fuzzier by the minute, according to several high-tech leaders. And that's causing a lot of angst among tech providers.

Google hopes to penetrate the corporate sanctum with its search appliance and other offerings. Meanwhile, legacy software makers, epitomized by Microsoft, are trying to adapt to a new software as a service (SaaS) worldview.

Google, with its pile of cash, is able to buy its way--at least initially--into any market. The Mountain View, Calif. Internet search kingpin bought Urchin a few months ago and "pretty much started giving away" its Web analytics, said Rafiq Mohammadi, CTO of Interwoven, Sunnyvale, Calif., maker of enterprise content management systems at Saturday's annual Harvard Business School Cyberposium in Boston.

Microsoft, which derives billions from the "rich client" world of Windows and Office, clearly sees the threat, but seems positioned to straddle a world of thin and thick clients. One partner says its plan is to have offerings for three scenarios, "thin client, fat network" where most functionality resides in the cloud; "fat client, thin network," which is basically the old Windows and Office model; and a hybrid for companies who want to mix and match such capabilities as needed.

"The challenges are interesting," said Steven Sinofsky, senior vice president of Microsoft's Office business. He said many corporate customers still prefer on-premise software and systems that are under their control. (Microsoft just made early code of Office 12 suite to a limited number of testers.)Microsoft's LiveMeeting conferencing software sits on the Internet cloud and "competes vigorously with Webex," he noted. "But there are a number of customers, actually a huge number, who won't go near it because we run it on our servers. I won't argue if that's right or wrong, but it's a very difficult challenge."

The problem is getting the closed corporate environment and the Internet to "mesh together," Sinofsky said. "Products are needed to bridge that gap and work seamlessly," he noted.

That would appear to be the motivation behind Microsoft's recently announced Windows Live and Office Live. The former is an extension to MSN that allows some basic file sharing and other tasks online. The latter is incremental Web-provided functionality to be used along with Office applications.

In this transition, Microsoft the undisputed power in PC software, has the most to lose.

Earlier this week, Webex Communications' CEO Subrah Iyar told CRN that Microsoft's need to protect its base forces it to hedge its bets on the SaaS front. The reason Microsoft is publicly targeting Office Live and Windows Live at very small businesses and consumers, is that it doesn't want to jeopardize its server and more importantly its client revenue-- in larger businesses."Associated with every strength is a weakness. For companies in the business of plying client software, Microsoft has been able to eat them alive. They can keep trying three and four times but they win and the reason is their huge distribution advantage in that world. They always bundle. Even if they don’t get it right, they bundle it with Windows, they bundle it with Office."

The difference now is that Microsoft is competing with a new generation of software companies who do not navigate the waters of client software and don't have to protect a franchise there. "With companies like Webex and Salesforce.com, it isn't about the technology on the desktop, it's about the technology in the cloud and accessed through a simple browser."

Of course, the only company that has as much money as Google to spend on new markets is Microsoft itself. So for many the question is first, whether the software-as-service push will eclipse the on-premise model. And if so, will Microsoft let others cannibalize its business or will it do it itself.