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Weekly Column

Has Google Peaked?: The Biggest Threat to Microsoft Might Not Be Those G-men at All, but Apple

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

Standing in line at the bank not long ago, I was behind a young man who insisted on maintaining a distance from the person in front of him of about 10 feet. The queue was perhaps 20 feet long and right in the middle was this 10-foot gap. I was in no hurry, I thought. That gap was not going to cause me to get to the teller more than a second or so later than I might if the gap was closed. No problem.

Only it WAS a problem. As the minutes passed that gap started to drive me insane. Finally I asked the kid to move forward.

"It was making you crazy, right?" he asked, clearly enjoying the moment.

Which brings me to Google.

What the heck Google is up to is a favorite topic of conversation this week in high tech circles. What's driving this is a combination of things including the new Google Toolbar, Gtalk, but most especially the company's announcement that it will shortly sell another $4 billion in shares. What does Google plan to do with all that money, people are wondering?

Nothing at all.

It's just a hunch of mine, but with more than $2.5 billion in cash already on-hand, I don't think Google has any plans at all for that extra $4 billion. The company just knows that this is the time when it can probably get the most money for the least stock EVER, so selling a few million extra shares now is just a cheap insurance policy against some later day when Wall Street might not be so enamored of the giant search company.

Yes, Google could buy Skype with that kind of money, but Google won't buy Skype. Google prefers to build rather than buy. And when they do buy, what they are buying is market position, and generally at a fairly low price. I don't expect any multi-billion-dollar acquisitions by Google, whether for cash or stock. Larry and Sergey know too well the story of Yahoo's boneheaded purchase of Broadcast.com, making Mark Cuban an instant billionaire and an affliction on both reality TV and the NBA. I blame Yahoo for that, and Google is working hard to learn from Yahoo's mistakes.

What Google WILL do is roll-out incremental products at a blinding pace. Not long ago, PayPal co-founder Max Levchin explained to me that rapid development is an important key to market dominance.

"What you want to do," he said, "is listen to your customers and bring out every two weeks improved versions that would each take your competitor two months to complete. That's when you are on a rocket -- they can't keep up so they can't compete. They lose hope and pretty soon you have the market pretty much to yourself."

That pace of technical development, which probably isn't sustainable for long at any company, isn't POSSIBLE at all at more mature companies like AOL, Yahoo, and especially Microsoft. That adolescent energy is the mojo that makes a startup scarier to Bill Gates than a mature competitor. He knows that if Microsoft ever takes a big dive, it will be because of a Google, not a Yahoo, and certainly not an AOL.

Google plays on its technical reputation even though, if you look closely, it isn't always deserved. Many Google products haven't been revved since they were introduced. And while some Google products are excellent, some aren't, too.

Google likes to play the Black Box game. What are they DOING in all those buildings with all those PhDs? I'm sure they are doing a lot that will change the world, but just as much that will never even be seen by the world. For the moment, though, it doesn't matter because Google can play the spoiler. They offered a gigabyte of e-mail storage, for example, at a time when they had perhaps one percent the number of e-mail users as a Hotmail or Yahoo. And by limiting the Gmail beta, they avoided the suffering of both those other companies when they, too, had to increase their storage allocations, but for tens of millions of real users.

Now Google will do something similar for chat and VoIP with Gtalk, pushing the others toward an interoperability that undermines the hold each company thinks it has on its users.

Google likes being a mystery, too. They are famously paranoid, sure, but they'd be a lot less paranoid if it didn't make them famous. Google, like Microsoft, is a brand built at least partially on envy, which you know is a sin. But at Google, at least, they seem to get a lot of pleasure from that sin.

So are they really buying-up all the dark fiber in an effort to build their own Internet? Are they really going to build a data center in Oregon that uses so much power it needs to be next to a hydroelectric dam? Who knows? Who cares? Google needs ever more bandwidth, sure, so dark fiber makes sense to buy when it is probably as cheap as it is ever going to get. And those 30 acres on the Columbia River don't ever have to become anything since they've already paid for themselves by driving Microsoft and the others a little crazy with wondering.

Google is like that kid ahead of me at the bank, driving others mildly insane and enjoying every minute.

Microsoft is totally obsessed with Google because Bill Gates is obsessed with Google. In a way, Bill needs a bogeycompany like Google to motivate the troops, since they are no longer being wowed by Microsoft's stock performance. Not long ago, I spoke with someone from MSN who said the mood there was so tight that his co-workers were acting like "mad dogs."

Bow-wow.

But what if everyone is mainly wrong? What if search and PageRank and AdSense are Google's corporate apex. Most companies would be content with that, but Google isn't supposed to be like most companies. But what if they are? I hear a lot of talk about Google doing deals for video and music distribution, but where are those deals? So far it is all just talk.

I hope Google does pull off a couple more spectacular product feats, but I won't be all that surprised if they don't. It will take the company another five years just to mature the businesses they already have.

So it could be that Google isn't the Microsoft-killer many people -- including Gates and Ballmer -- fear the company is. Going a step further, it is even possible that Gates's conviction that he'll eventually be taken down by a startup is wrong, too.

Here's where I go out on a limb, but I think Microsoft's clearest threat still comes from Apple, though not the way most people expect. Yes, Apple is about to take Microsoft to the woodshed when it comes to Internet movie distribution. Yes, Apple already super-dominates the music player market where Microsoft doesn't even really exist. But the real jewel is one Microsoft has to lose, not gain -- the PC platform, itself.

What could Apple do to take down Windows, with or without the help of Intel?

What seems to me to be the answer came to me this week from a reader who had a disruptive idea that I gleefully embellished.

Here are the clues. Microsoft is woefully late with its next Windows upgrade, while Apple is far ahead with even the current version of OS X. Apple is moving to Intel processors and hackers have already shown that OS X can run fine on non-Apple hardware. But Apple doesn't want to give up its profitable hardware business to compete head-to-head with Microsoft. And remember, Apple totally dominates the portable music player market and will probably sell 25 million iPods or more this year.

Every one of those iPods is a bootable drive. What if Apple introduces OS 10.5, its next super-duper operating system release, and at the same time starts loading FOR FREE the current operating system version -- OS 10.4 -- on every new iPod in a version that runs on generic Intel boxes? What if they also make 10.4 a free download through the iTunes Music Store?

It wouldn't kill Microsoft, but it would hurt the company, both emotionally and materially. And it wouldn't hurt Apple at all. Apple hardware sales would be driven by OS 10.5 and all giving away 10.4 would do is help sell more iPods and attract more customers to Apple's store.

Like that kid in line at the bank, it would drive Bill Gates crazy.

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