It has taken years, but Google seems to be cutting into Microsoft's stronghold - businesses.
Google's
software for businesses, Google Apps, consists of applications for
document writing, collaboration, and text and video communications - all
cloud-based, so that none of the software is on an office worker's
computer. Google has been promoting the idea for more than six years,
and it seemed that it was going to appeal mostly to small businesses and
tech startups.
But the notion is catching on with larger enterprises. In the last year Google has scored an impressive string
of wins, including at the Swiss drug-maker Hoffmann-La Roche, where
more than 80,000 employees use the package, and at the Interior
Department, where 90,000 use it.
One big reason is price. Google
charges $50 a year for each person using its product, a price that has
not changed since it made its commercial debut, even though Google has
added features. This year, for example, Google added the ability to work
offline, as well as security and data management that comply with more
stringent European standards. That made it much easier to sell the
product to multinationals and companies in Europe.
Many companies
that sell software over the cloud add features without raising prices,
but also break from traditional industry practice by rarely offering
discounts from the list price.
Microsoft's Office suite of
software, which does not include email, is installed on a desktop PC or
laptop. In 2013, the list price for businesses will be $400 per
computer, but many companies pay half that after negotiating a volume
deal.
At the same time, Microsoft has built its business on
raising prices for extra features and services. The 2013 version of
Office, for example, costs up to $50 more than its predecessor.
"Google
is getting traction" on Microsoft, said Melissa Webster, an analyst
with IDC. "Its 'good enough' product has become pretty good. It looks
like 2013 is going to be the year for content and collaboration in the
cloud."
Microsoft has also jumped on the office-in-the-cloud
trend. In June 2011, it released Office 365, and now offers its software
in both a cloud version and a hybrid version that uses cloud
computing and conventional servers. Office 365 starts at a list price of
$72 a year, per person, and can cost as much as $240 a person annually,
in versions that offer many more features and software development
capabilities.
Microsoft says it offers more than Google for the money, but the product has not won many converts from Google.
In
a recent report, Gartner, the information technology research company,
called Google "the only strong competitor" to Microsoft in cloud-based
business productivity software, though it warned that "enterprise
concerns may not be of paramount importance to the search giant."
Google
is tight-lipped about how many people use Google Apps, saying only that
in June more than 5 million businesses were using it, up from 4 million
in late 2011. Almost all these companies are tiny, but in early
December, Google announced that even companies with fewer than 10
employees, which used to get Google Apps free, would have to pay.
Google's
revenue from Apps, according to a former executive who asked not to be
named in order to maintain good relations with Google, amounted to
perhaps $1 billion of the $37.9 billion Google earned in 2011.
Shaw
Industries, a carpet maker in Dalton, Ga., with about 30,000 employees,
switched to Google Apps this year for communication tools like email
and videoconferencing. Jim Nielsen, the company's manager of enterprise
technology, calculated that using Google instead of similar Microsoft
products would cost, over seven years, about one-thirteenth Microsoft's
price.
Shaw is a subsidiary of Berkshire Hathaway, run by Warren
Buffett, but the close friendship of Buffett and Microsoft's founder,
Bill Gates, did not sway Nielsen. "When you add it up, the numbers are
pretty compelling," he said.
In addition to the lower price,
Google has simplicity in pricing. Nielsen said he had to sort through 11
pricing models to figure out what he would pay Microsoft.
But
his prime motive in choosing Google, he said, was online collaboration.
"As people in their daily lives become more electronically social, they
want to bring that into the office," Nielsen said. "Video is more
appealing than a written letter."
Google, he said, is "constantly making it better for teams to work, inside and outside the company, with controlled access."
Microsoft
says it does not yet see a threat. Google "has not yet shown they are
truly serious," said Julia White, a general manager in Microsoft's
business division. "From the outside, they are an advertising company."
In 2011, 96 per cent of Google's revenue came from advertising.
Even
though Microsoft sells a similar product, she said most companies did
not want to depend exclusively on clouds for documents and
communication. Microsoft now has some of its own workers entirely
online, she said, while others use both local computers and the cloud,
to get a feel for how various companies work.
Although she would
not break out numbers, White said Office 365 was "on track to be our
fastest-growing business." She said that Google, to be a threat, would
need to "provide a quality enterprise experience" in areas like
"privacy, data handling and security."
But according to the
General Services Administration, out of 42 federal government contracts
for which Google and Microsoft competed in 2012, Google won 23 deals,
and Microsoft 10. The rest went to another company, Zimbra, which is
owned by VMware, a maker of cloud software.
Microsoft's biggest
and most profitable sector, its business division, brought in nearly $24
billion in the 2012 fiscal year that ended in June. Almost none of that
came from Office 365, but from the familiar older-style software that
depends on computers within the corporation.
As the two behemoths
slug it out in the enterprise market, their cloud-computing software is
changing the way businesses operate. Internet-based computing makes it
easier to communicate both within and outside a company. Fixing software
and adding features can be done automatically, the way consumers get
the latest version of Facebook when they go to its site.
"People
were looking for cheap email at first, but now it's about collaboration,
calendaring and data storage online," said Webster of IDC. Over time,
her firm says, software revenue will be at least 50 per cent from the
cloud, which could challenge the complex way Microsoft prices and
discounts its products.
White, the Microsoft manager, said Google
"helped amplify a lot of the conversation around cloud productivity."
That is a far cry from last February, when Microsoft put a video on
Google'sYouTube website lampooning Google with a parody of the old
television show "Moonlighting."
Google, the video suggested,
would automatically change around a buyer's software. But cloud-based
software is supposed to issue automatic updates and feature changes.
Microsoft has issued several updates to Office 365, though, unlike
Google, it lets customers delay the changes for up to a year.