Folks responded with good points to my post from yesterday, "Why Microsoft is So Far Behind Google on the Web," a riff on how Microsoft lets Google buy what it wants -- AdMob, YouTube, DoubleClick -- without challenging or responding to its nemesis.
The comments that praise Microsoft for its frugality regarding Internet businesses have the tenor of "well, Google buys companies that don't make any money." Spoken like people who don't believe that every Web service can be infused with online ads.
That's why Google continues to target successful companies like Yelp and online real estate specialist Trulia. Google sees the potential to expand its online ad companies. Microsoft either doesn't see this, or prefers to pump money elsewhere.
"Your argument misses the fact that the sexiest social networks and web properties don't make any money--how much has Google spent and lost on YouTube over the years? So why shouldn't Microsoft sit on the sidelines? Investing in Opalis and beefing up System Center isn't going to win over the cool kids in Silicon Valley, but that's an impossible mission for MSFT and one that, as a shareholder, I'm glad the company isn't too interested in."
True, making good advertising money from social networks has proven elusive. It's salient that this author mentioned YouTube, which hasn't made money, but it's getting there.
As for YouTube, Google CFO Patrick Pichette and other Google execs have promised YouTube is on the path to profitability thanks to improved display advertising with DoubleClick, etc. Google didn't make money over night when it launched, but by 2004 AdWords was absolutely humming.
MsftDoesOtherBusinessToo meanwhile chimed in:
"Google uses its advertising dollars to constantly spend on companies and services that lose money. Sooner or later the gravy train of "look at all the cool, hip things we give away for free so please continue to use our core platform" will go away and the shareholders will all run for the hills. Microsoft is a company that has a history of making money - something that shareholders find oddly attractive."
That's part of why Microsoft is lost at sea when it comes to the Internet companies. Microsoft looks at these startups as though they are a month away from being dot-com busts circa 2000. They see the money these companies are losing, or have yet to make, and stay away. They want businesses that are making money or are an inch away from it. Microsoft is not thinking about innovation so much as whether or not a new property will help it turn a buck.
Google thinks about the technology and whether or not it will fit in with its properties. Google knows it always has its search ad business reaping 95 percent of its revenues, so it can afford to gamble a little more.
Meanwhile, Bruce Wagner has his own theory for Microsoft's hesitance to chow down on Web startups:
"Microsoft makes its money in old-fashioned software - Windows and Office. They are almost as terrified of apps "as a service" on the web, as they are terrified of the public finding out about Ubuntu Linux. They view it as the death of their industry and the cash cow that has served them so well. Developing for the web therefore seems to go against everything they stand for - like working for the enemy almost...."
I believed that, too, before this summer. But then Microsoft rallied Live Search from death's door with Bing, the most exciting search technology to challenge Google yet. So Microsoft knows a little something about making cool Web products, even if the innovation is relegated to search.
Collins Stewart analyst Sandeep Aggarwal noted in a Dec. 23 research note:
"MSFT has been gaining traction in search for the past 5-6 months after years of disappointment and we are encouraged by the trend reversal. However, with MSFT's laser focus on search, it is missing out on three other big opportunities for the Internet i.e. mobile, display, and social. Mobile Internet and social could have been a natural evolution of MSFT's core offerings."
Which is why it is surprising Microsoft was surprised Google was going after Yelp. But I can debate with shareholders and Microsoft aficionados about Microsoft's innovation and M&A practice to exhaustion without resolution.
Instead, I'll refer you to the perspective of Don Dodge, who's one of the rare superstars to play for both Microsoft and now Google.
Dodge praises Microsoft up and down. He loved working there. He didn't want to leave, but Microsoft laid him off. Now he gets to help Google beat Microsoft in the Web game. There is a certain irony and justice there.
Dodge made some comments that highlight the differences between Microsoft and Google to the Seattle Post-Intelligencer in a pre-holiday interview, and it's a must read if you follow the Web war Google is waging with Microsoft.
Dodge compared Microsoft in 2009 to IBM in 1985. Ouch. He said:
"Microsoft is still a powerful company - $60 billion in revenue and very profitable - but I think after 20 years they are losing the innovation edge. The most innovative companies today are Google, Apple and Facebook. Very few companies can dominate an industry for more than 20 years. It is just the natural competitive cycle. Another factor - Bill Gates leaving the company. The transition was smooth, but not having Bill there every day has far-reaching implications."
Specifically, Dodge pointed to the emergence of the Internet cloud and the fact that our smartphones will become our PCs, leveraging the cloud from anywhere:
"Microsoft has product offerings in each of these areas, but they weren't the high-priority programs. Windows Mobile is struggling, and Windows Azure is just starting to emerge, so the focus was elsewhere. At Google, Chrome (browser), Google App Engine and Google Apps (cloud), and Android (mobile) are top priorities, so I am spending a lot more time in these areas than I did at Microsoft."
Make of that what you will. I make of it that the key Web innovation is still going on at Google, not Microsoft.
I hope and expect Microsoft to provide Google more competition on the Web in 2010.