Google and Microsoft to escalate war in 2010

The two behemoths will battle over search, operating systems, enterprise applications

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.

Special report: Looking back at 2009, ahead to 2010
Special report: Looking back at 2009, ahead to 2010

"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% 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%. But Microsoft's Bing has failed to fail. The new search service has largely been gaining steam, albeit in small increments, but gaining nontheless.

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