Microsoft and Google's battle for supremacy By Steve Lohr The New York Times Published: May 10, 2006, 4:49 AM PDT
http://news.com.com/Microsoft+and+Googles+battle+for+supremacy/2100-1014_3-6070583.html?tag=nefd.top The Microsoft-Google rivalry is shaping up as a titanic corporate clash for the ages. It may not turn out that way. Markets and corporate fortunes routinely defy prediction. But it sure looks as if the two companies are on a collision course, as the realms of desktop computing and Internet services and software overlap more and more. Microsoft, of course, is the reigning powerhouse of computing and Google is the muscular Internet challenger. On each side, the battalions are arrayed: executives, engineers, marketers, lawyers and lobbyists. The spending and competition are escalating daily. For each, it seems, the other passes what Andrew S. Grove, a founder and former chairman of Intel, calls the "silver bullet test" of strategic competition. "If you had one bullet, who would you shoot with it?" How the Microsoft-Google confrontation plays out could shape the future of competition in computing and how people use information technology. Do the pitched corporate battles of the past shed any light on how this one might turn out? Business historians and management experts say the experience in two of the defining industries of the 20th century, mass-market retailing and automobiles, may well be instructive. The winners certainly scored higher in the generic virtues of business management: innovation, execution and leadership. But perhaps even more significant, those who came out on top, judging from history, had two more specific attributes. They were the companies, according to business historians, that proved able to adapt to change instead of being prisoners of past success. And in their glory days, these corporate champions were magnets for the best and brightest people. "One area where Microsoft and Google are really competing head-to-head now is in the war for talent," said Richard S. Tedlow, a historian and professor at the Harvard Business School. "Historically, the company that won the war for talent, won the war." Tedlow points to Montgomery Ward as a company that lost talented managers to its rival Sears, and then lost its way. The crucial defection, Tedlow said, was Robert E. Wood, a former Army general who joined Montgomery Ward in 1919 as a general merchandise manager. Even in the Army, Wood was a close reader of the Statistical Abstract of the United States, the Census Bureau's annual tracking of social and economic conditions. Wood became convinced that America was at the beginning of a huge population shift from rural regions to urban areas. That meant, he understood, that the mail-order giants like Montgomery Ward and Sears needed to move from being catalog retailers serving a dispersed market to department store merchants with stores in city and suburban population centers. Sears, as a company, grasped that fundamental change in the marketplace in a way that initially Montgomery Ward did not, Tedlow said. In 1924, Wood left Montgomery Ward to join Sears, and he later recruited others. In 1945, Wood, then the chairman of Sears, made another smart call on economic trends. The postwar years, he decided, would bring a long expansion, as pent-up consumer demand from the war years was unleashed. So Sears embarked on a national store-building binge. His counterpart at Montgomery Ward, Sewell Avery, made the opposite bet, keeping money in the bank to prepare the company for a postwar depression, which he was convinced was around the corner. Over the next several years, sales at Sears doubled, while Montgomery Ward's shrank 10 percent. "Losing Robert Wood was catastrophic to Ward," Tedlow observed. In its recruiting face-offs against Google, Microsoft insists that it fares quite well over all. But there have been some high-profile defections of leading engineers, who said they preferred Google's technological direction and corporate culture. The talent grab The most prominent was Kai-Fu Lee, a stellar computer scientist and manager. Lee not only established Microsoft's research labs in China, but he is also an expert in areas like natural language and speech-recognition technologies--important ingredients to Internet search today and to the way people will interact with computers in the future. Last year, when Lee left Microsoft, it sued Google and Lee. Microsoft claimed, under a Washington state law, that Lee violated a noncompete clause in his employment contract and misused inside information in going to work for Google. The suit was settled last December. "What does it say about a company when it sues when someone leaves?" Tedlow asked. "It makes Microsoft sound like a prison." In business, forever tends to last about five years, a decade or two at most. So Sears prospered for a time and celebrated its success by building the Sears Tower in Chicago in the 1970s. Yet even from a height of 110 stories, Sears failed to see Wal-Mart coming. Wal-Mart brought the next revolution in retailing with its shrewd use of computer technology to track buying trends and orchestrate suppliers to become a hyper-efficient, low-cost merchant. The auto industry presents a sobering history of past-success syndrome. The Model T, introduced by Henry Ford in 1908, famously made the automobile affordable, helped along by his pioneering assembly-line production, which started in 1913. Ford's laserlike focus on efficiency drove the cost of a Model T from $850 when it was introduced down to $275 by the early 1920s. But cost and efficiency was all he focused on. The design was not updated, the color selection remained black and only black. Eventually, the single-mindedness caught up with the company. In 1925, the Ford share of the American market had fallen to 45 percent, from 57 percent two years earlier. By then, Alfred P. Sloan Jr., the managerial maestro of Detroit, was president of General Motors and its sales were surging. "Henry Ford was so in love with his brilliant idea that he refused to change," said John Steele Gordon, a historian and author of "The Business of America" (Walker, 2001). General Motors was well on its way to becoming the world's largest carmaker. Yet as early as the 1950s, the Japanese challenge to Detroit's auto supremacy was quietly getting under way. The architect of the Japanese ascent was a production engineer, Taiichi Ohno, who worked at Toyota. In 1950, Toyota manufactured 13,000 cars, barely a day's production for GM Ohno had to devise an efficient way to manufacture a variety of cars in small production runs. He turned that adversity into an advantage, using rapid tooling changes, constant quality improvements and just-in-time parts delivery to steadily improve the cars. Once again, the corporate giant was complacent, and late to see a fundamental shift in its industry. "GM did not take Toyota and the Japanese seriously until the 1980s," said Michael A. Cusumano, a professor at the Sloan School of Management of the Massachusetts Institute of Technology and author of "The Japanese Automobile Industry" (Harvard University Press, 1986). "By then it was really too late." History, then, suggests that past success is often an anchor holding a company back, and that Microsoft is at risk from the Google challenge. "The wind is really behind Google, and Microsoft's main tool for navigating the future is the rear view mirror," said Paul Saffo, a director of the Institute for the Future, a forecasting consultancy in Silicon Valley. Microsoft bristles at being cast as a laggard. In a meeting last week with online advertisers and reporters, Bill Gates, the Microsoft chairman, portrayed his company as a force for healthy competition in Internet search. "We will keep them honest," Gates said of Google. And he vowed to catch up. "I think this is a rare case where we are being underestimated," he said. Microsoft certainly has plenty of money to finance any competitive foray, with $35 billion in cash, while Google has about $8 billion. Indeed, the incumbent-challenger narrative--which portrays the incumbent as an endangered species--may not apply this time. Microsoft has adapted nimbly to big challenges before. Apple introduced point-and-click graphical computing with the Macintosh in 1984, but Microsoft caught up and became dominant on the desktop with Windows. In the mid-1990s, Netscape Communications posed a threat because the Internet browser might undermine the importance of Windows. Microsoft came up with its own browser and rebuffed that challenge, partly with tactics that violated antitrust laws, a federal appeals court ruled. "Microsoft has responded every time in the past," said Cusumano, who is also the author of two books on Microsoft. Now comes Google. It is offering or developing as free Web-based services e-mail, word processing and other programs that could replace Microsoft desktop programs and eat into Microsoft's lucrative software business. But that is by no means certain. Google is cagey about its strategy. When Netscape was flying high, some of its executives talked of making Microsoft irrelevant--a strategic blunder, according to Silicon Valley lore. Google's chief executive, Eric E. Schmidt, is a veteran of past battles with Microsoft, and he has no intention of making the same misstep. He speaks mainly of Google's limitless potential and ambitions, embellished by intriguing remarks like the one recently that Google is "building the systems and infrastructure of a global $100 billion company," many times its current yearly revenue. Some clues about Google's plans could emerge today, when its executives hold an annual media day at its Silicon Valley headquarters. Google now makes virtually all its money by selling advertisements linked to its enormously popular Internet search service. Microsoft and Yahoo are desperately trying to close the gap with Google, the Internet search and ad sales titan. If Google stumbles, it will be seen as the company unable to move beyond a single stellar success. Since the future is so often the pattern of the past with some twist, what is the expert view? "I'm a historian," said Tedlow of Harvard. "Ask me in 10 years and I'll tell you why what happened was inevitable." Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list medianews@twiar.org To unsubscribe send an email to: [EMAIL PROTECTED]
