Microsoft vs. Google: The empire strikes back

Ray Ozzie’s ambitious plan to revitalize Microsoft’s software, beef up its services, and kick the crap out of Google

It can't be easy being Ray Ozzie. Microsoft's chief software architect is just 18 months into the job as Bill Gates' handpicked successor, yet depending on whom you ask, his tenure will either signal a bold new era for the company or mark the beginning of its terminal decline.

From the perspective of Microsoft shareholders, the picture certainly looks grim. After a decade of timid stock performance, the fiscal year that ended June 2009 saw Microsoft's net revenue decrease for the first time in its history. It also announced its first-ever layoffs and has since exceeded its original estimate of 5,000 pink slips. But worst of all, for the first time in recent memory, Microsoft confronts a rival of goliath proportions that actually seems capable of going the distance with the software giant.

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That rival, of course, is Google, and the search leader's relentless expansion is battering Microsoft on virtually every front. Google's emphasis on the Web as an application platform challenges the primacy of PC software and operating systems, Microsoft's traditional cash cows. Its forays into mobile devices call into question the very concept of desktop computing. Its Web-based services and open source software fly in the face of Microsoft's core business model. Philosophically speaking, Google is the anti-Microsoft -- and it's making a killing at it.

By comparison, the world's largest software vendor has adapted poorly to the changing market landscape. On the Web, Internet Explorer is dead last in standards compliance, and its critical security flaws sometimes go unpatched for months. Windows Mobile claims just 7.9 percent of the smartphone market, and according to Gartner, sales are slowing. Microsoft's vaunted new search service, Bing, has won few converts from Google, except where Microsoft has strong-armed them into using it. In short, while it may be first in desktop software, Microsoft's track record outside its comfort zone has been fairly dismal, enough so that in 2007, venture capitalist Paul Graham declared, "Microsoft is dead."

But Ray Ozzie has a plan. With the Windows division back on track and new version of Office set to debut this year, "software plus services" is the new mantra at Microsoft's Redmond headquarters. It marks a strategic shift that will transform everything about the company, from how it develops, markets, and deploys software to its relationships with its customers. Ozzie doesn't want to beat Google at its own game; rather, he wants to remind Google that the software game has been and remains Microsoft's. But to succeed, he's going to have to rewrite Microsoft's playbook along the way.

Ozzie rules: The "software plus services" vision

Nearly five years ago Ozzie, then Microsoft's newly minted CTO, issued a memo outlining his vision of the next step in the company's ongoing evolution. "[People are] increasingly drawn toward the simplicity of services and service-enabled software that 'just works,'" he wrote. "Businesses are increasingly considering what services-based economics of scale might do to help them reduce infrastructure costs or deploy solutions as-needed and on subscription basis."

In other words, Ozzie felt it was high time for Microsoft to compete with Google on its home turf. But in Ozzie's vision, Microsoft would embrace the Web differently than the search titan has. While Google sees the browser as the ultimate client UI for software large and small, with the cloud as the ultimate repository for all data, Ozzie sees an opportunity for Microsoft to offer services that augment and enhance traditional desktop software. Where Google sees thin clients interfacing with powerful applications, Ozzie sees rich client applications consuming lightweight services.

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