Microsoft still has the firepower to research and destroy

As usual, I share in this blog interesting articles I come accross. The LEX column of the Financial Times, is arguably both the most read and best written piece of paper in the financial industry. Yesterday, it expanded on the Microsoft vs Google fight for establishing a strong foothold on the Internet. As usual, it does a good job of cutting to the chase. Enjoy! 

September, 11th 2006
(c) 2006 The Financial Times Limited.

Microsoft still has the firepower to research and destroy. Goldman Sachs expects it to spend more than Dollars 7bn on research and development this year – dwarfing Google at less than Dollars 1bn.

In recent years, a significant chunk of that spending has gone towards the development of Vista. Now the new operating system is finally nearing launch, will Microsoft point its big gun at Google and blast it away?
Probably not.

First, R&D budgets are complex. Rather than all going into the most exciting new areas, huge resources are needed for the complex process of keeping existing products up to date and ensuring they work with multiple platforms and devices. Budgets cannot simply be switched at will. Teams have to be kept in place to work on constant upgrades and new versions.

Second, money does not guarantee success. Giant tech businesses (including Google and Microsoft) have sprung from humble roots. A big factor in success is not just resources but the innovation culture. A risk for both Google and Microsoft remains something emerging from a Silicon Valley garage.

Of the two companies, Google arguably has more flexibility, not having Microsoft’s complex array of existing products to keep investing in. With its core software as a service offering, Google can innovate rapidly on the internet. It can launch beta versions and make improvements while watching how customers use them. Microsoft can do this with software online. But in its traditional software businesses, upgrades tend to be bigger, more complex and more time-consuming.

On the face of it Google has a slingshot compared with Microsoft’s armoury. But it is not weighed down by the baggage of the past. And Microsoft’s not-so-secret weapon of its desktop monopoly is unlikely to be as pivotal in the latest round of internet wars as it was with Netscape. The fight between Microsoft and Google is likely to be much more equal than the relative size of their budgets might suggest.

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