Microsoft is taking its Google battle to the clouds. The software giant has unveiled a new suite of online subscription services—so-called cloud computing—to small and medium businesses. Google’s cheaper version of similar services has proved underwhelming so far, leaving an opening for Ballmer and company. But Microsoft’s new efforts and its bid for Yahoo show just how worried the company is by the trend.
Microsoft’s business division sold $16.4 billion worth of software last year or accounted for more than half the company’s total profit. Yet, Google threatens to cannibalize Microsoft’s business by offering ad-supported online spreadsheets, word processing, email and calendars. Moreover, online services have a series of other advantages for customers besides price. Theoretically, online services are easier to install, run and are designed for easier collaboration among users.
Yet, Microsoft isn’t exactly jumping in with two feet. Its new offerings are limited to things like email, calendars and contact lists. Conspicuously missing from the list is Office—the software suite that represents more than 90% of its revenue. This is probably smart. Google’s online applications are still awkward to use. This gives Microsoft time to milk its cash cow a bit longer while designing an offering that won’t alienate customers.
There’s a second advantage of delay. Its plans to acquire Yahoo are slowly coming closer to fruition.
But Microsoft can’t dither too long. As the newspaper industry shows, incumbents can prepare carefully for cheaper online competitors and still suffer a walloping. There is simply lots of organizational inertia against offering cheap or free versions of one’s own products. It will take nimble dancing to integrate a company acquired via a hostile bid and successfully build a business by destroying its own monopoly. Unfortunately for Microsoft, it has little choice.