News Analysis: Google and Microsoft to escalate war in 2010

For those who think this corporate fight hit a crescendo in 2009, industry analysts say they better think again.

One of the most heated battles among technology companies was waged this year between Google Inc. and Microsoft Corp.

For those who think this corporate fight hit a crescendo in 2009, industry analysts say they better think again. It looks like this is just getting started.

The battle escalated this year as the two high-tech titans went after each other's market share and revenue stream in Internet search, [operating systems,][enterprise applications] and [browsers] . With each company seeing the other as a major threat to its bread and butter products, 2009 may been just a warm-up for the battle that will ensue in the months to come.

"These two companies really squared off this year," said Jim McGregor, an analyst with In-Stat. "Both are looking for dominant positions in the Internet. For Google to increase its business, it needs to move into other territory. For Microsoft to have significant growth opportunities, it needs to become an Internet powerhouse, and they know it. This is not a war that is going to be won by one or two battles. This is going to be a prolonged activity."

He added that the battle isn't simply over which can be called top dog, because the fight is critical to both companies. "For Google, it's about expanding, and for Microsoft, it's about a life-or-death challenge," McGregor said.

The two companies basically grew into this face-off.

Google, one of the great Internet success stories, has grown into an [online behemoth] . With a name that has evolved into a verb meaning "to search," Google grown so much that it has become a threat to Microsoft, which has had a long and storied history of high-tech industry dominance. There was a time not so long ago when few believed that any company could rattle Microsoft, let alone a Web company like Google.

But those days are over. Google has rattled Microsoft's cage and, in turn, the software giant has set its sights on taking its new rival down a notch or two. Microsoft has spent millions of dollars and used countless manpower hours to grab a chunk of Google's search market share and topple the Web company from its new lofty perch above the high-tech industry - eliminating the threat to Microsoft's longheld industry dominance.

"The reason that Microsoft is so focused on Google is because Google is chipping away at Microsoft's crown jewels of Office and Windows with their online applications," said Dan Olds, an analyst with The Gabriel Consulting Group. "While Microsoft plays defense on the applications/operating system front, they're attacking Google on search and online services. Search is the key to Google's success since Web ads account for more than 90 per cent of its revenue. If you can steal some eyes from Google's search engine, you cut into their ad revenue and, perhaps over time, cripple them."

This back and forth between the two companies intensified when Microsoft overhauled its far-from-beloved Microsoft Live Search and released the update, Bing search engine in June. But make no mistake about it - Google still owns the search market with a share of more than 64 per cent. But Microsoft's Bing has failed to fail. The new search service has largely been gaining steam, albeit in small increments, but gaining nontheless.

Microsoft has more reason to hope that Bing will take a significant chunk out of Google search since the company announced plans over the summer to team with Yahoo Inc. , which holds the second-place spot in the search market - nestled snugly between Google and third-place Bing. The deal, which still has to be approved in the U.S. and in Europe, would have Yahoo give up its own search technology to use Microsoft's.

Pooling their resources and industry might, the two companies hope to do together what neither has been able to do alone - significantly make gains on Google's ubiquitous search.

The search battle heated up this fall when both companies announced they had struck individual deals to serve up real-time search results. Microsoft will be offering users real-time tweets from Twitter and posts from Facebook, while Google has already begun working with Twitter to offer up tweets in its search results.

But this fight extends beyond search.

Google pushed hard this past year to move its cloud-based office applications into the enterprise. Taking on Microsoft's ubiquitous Office applications was a bold move that could prove lucrative if it succeeds. Microsoft, however, isn't sitting back and watching Google move into that territory. The company announced this year that it plans to move its Office applications to the cloud and take on Google head-to-head.

The Google/Microsoft fight also extends into the browser arena with Google Chrome going up against Internet Explorer. Google also announced that it's working on the Linux-based Chrome OS operating system , which, if widely adopted, could help users see Google's Apps offering as a viable alternative to Microsoft's Office suite.

"This battle was always looking like a long-term conflict," Olds said. "It's the equivalent of high-tech trench warfare. In 2010, we can expect to see the bitter competition continue, with each company keeping up the heat with new features and innovations."

McGregor noted that the next 18 to 24 months are looking to be fun to watch with the two giants pulling out all the stops, and all their weaponry, to try to take down the other.

He added that the search market should expect to see a greater focus on real-time search and more advanced algorithms designed to help the search engines figure out what people are thinking and how to give them more information. For instance, instead of searching for pet stores and getting a list of stores in a certain area, users might be given a list of stores along with directions on how to get to each one from their current location.

Rob Enderle, an analyst with the Enderle Group, said we're likely to see more industry players, such as Apple Inc., Mozilla Corp. and News Corp. aligning against Google.

"Both companies are largely betting their collective futures on this battle so the stakes are huge," Enderle said. "Microsoft is going to partner and try to starve Google out of content and partners. Google is going to work against Microsoft's pricing model and starve them out of money. Both are, for once, largely going after each other's relative weaknesses and leveraging their respective strengths, so this will likely be a battle for the history books."

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