News

Analysis: How Apple, Google Are 'Disrupting' Microsoft's Dominance

• By Kurt Mackie
• December 15, 2011

With its growth spurt having ended a decade ago, Microsoft now faces "disruptive" competition from Apple and Google.

That was the conclusion of Gartner analysts Tom Austin and David Mitchell Smith, who spoke in a webcast on Wednesday that charted the evolving competition between the three companies. In their talk, titled "Google and Apple: Disrupting Microsoft and Others," Austin and Smith said that while the three companies are different, they are competing in the same battlegrounds: social networking, portals and collaboration, mobile device operating systems, the Internet cloud and e-mail.

The Boom Years
Microsoft now acts as a steward over a huge install base, based on a legacy growth period spanning 1986 to 2000. Investor equity in the company during that period grew "50,000 percent," Austin said. Microsoft now serves as "the dominant player in the industry" in many ways, he said. The company got into the enterprise software business in the mid-1990s and has become "very knowledgeable" in that sector. Right now, Microsoft is seeking growth strategies since its stock "has gone nowhere" from 2000 to 2011.

Apple was an "early darling that fell out of favor," but the company has risen in recent years to exceed Microsoft's market capitalization value. Apple's boost period tracks to the years 2006 to 2011, during which the company had a "phenomenal ride" from its vertically integrated, high-margin hardware and from the power of its "elegant" software designs.

Google has a "cowboy" sensibility and is able to spend a few dollars on technologies like Google Docs that cause Microsoft to spend 10 times that amount in reaction. Google's boost phase stems from 2004 to 2006, according to Gartner. The company gets the bulk of its revenues from search and advertising -- about 97 percent, according to Austin. Google Apps account for just 0.5 percent of the company's revenues, according to a Gartner estimate. However, Gartner expects that Google Apps will become a more central part of Google's business in "the next five to seven years." The company could rise to $100 billion in revenues by 2017, according to a Credit Suisse estimate, Austin noted.

Competitive Markets
Microsoft gets most of its revenues from its Windows and Windows Live Division and its Business Division. Its Xbox consumer gaming console and Windows Phone are "barely profitable," Smith said. Microsoft's attempts to seek growth have not succeeded, he added. The company is currently trying to muscle into the search and advertising business dominated by Google. Microsoft once was willing to pay $40 billion to buy all of Yahoo to advance on the search-advertising front, Smith noted. Microsoft's cloud strategy is its most ambitious growth effort so far, but Microsoft isn't following Google's lead there, Smith explained. Both Google and Microsoft have developed cloud platforms, while Apple lacks such involvement.

Apple sets itself apart from Google and Microsoft through its successful growth strategies. The company generated $28.58 billion in revenue in the quarter ending on June 26, 2011, up 82 percent from the year-ago quarter. It has about $76.2 billion in cash. Apple has a cloud strategy with its iCloud that is just starting up, mostly based on data storage and synchronization. Apple may be able to get a foothold in the search-advertising space with its Siri voice mobile service.

On the social networking front, all three companies have failed more than they've succeeded, Austin said. Microsoft is the "clear leader" on portal and collaboration technologies with its SharePoint products.

Apple reignited the mobile smartphone space, while Google "cloned" its Android operating system in reaction, according to Smith. Google wants to control how the mobile space shapes up to protect its search-advertising market. Microsoft is trying to make its way by offering a new user interface with Windows Phone. Microsoft is also attempting to come back in the tablet space with Windows 8, but the new OS probably won't ship until the "second half of next year," Smith said.

The e-mail and collaboration market is going to take about 15 years to show advances, according to Austin. About 5 percent of organizations today are actively migrating to e-mail and collaboration solutions, and that number could hit 10 percent by 2014. The early adopters will be small organizations of fewer than 500 employees, he said. Microsoft and Google currently co-lead in this market space, with "IBM in the wings."

In the pure e-mail market space, Microsoft currently leads. Microsoft controls 80 percent of the corporate e-mail market, Austin said. However, he added that "we don't see them crushing Google as we thought they would." Google's Gmail "was good enough for our needs a year ago," he said. Gartner doesn't see Google Sites and Google Docs as good enough to use for all users, but Austin nevertheless recommended putting a Google Apps pilot into place.

Austin said that Microsoft Web Apps are "significantly inferior to Google apps." However, he added that Google Apps are "significantly inferior to Microsoft Office." Organizations should determine how many of their users don't need to use Microsoft Office when weighing a switch to Google Apps. If an organization needs a hybrid implementation, only Microsoft offers that option.

Conclusions
In general, the analysts saw Apple doing extremely well in the mobile device markets. Microsoft was seen as succeeding with Windows 7 and Office Web Apps. Google is showing positive gains with its Gmail service.

On the negative side, Apple faces uncertainty with the loss of CEO Steve Jobs and walks a fine line on being seen as too controlling, according to Gartner. It also faces challenges on the mobile front from Google's Android.

Microsoft still needs to get its growth strategy going and faces a revenue squeeze in mobile markets. The Gartner analysts also questioned Microsoft's direction in a post-Bill Gates, post-Ray Ozzie world.