Why Google Scares Bill Gates

A very long, but insightful article from Fortune Magazine on why Microsoft is spooked by the rise of Google. Well worth the time if you are interested in IT super-companies.

Today Google isn’t just a hugely successful search engine; it has morphed into a software company and is emerging as a major threat to Microsoft’s dominance.


Simply put, Google has become a new kind of foe, and that’s what has Gates so riled. It has combined software innovation with a brand-new Internet business model—and it wounds Gates’ pride that he didn’t get there first. Since Google doesn’t sell its search products (it makes its money from the ads that accompany its search results), Microsoft can’t muscle it out of the marketplace the way it did rivals like Netscape. But what really bothers Gates is that Google is gaining the ability to attack the very core of Microsoft’s franchise—control over what users do first when they turn on their computers.


Dozens of current and former Microsofties say that Google’s success is causing a corporate identity crisis. Gates basically created the notion that success in software is a function of the IQ of your team, and for years Microsoft has prided itself on having the smartest employees on the planet. Now many of those overachievers feel as though they’ve gotten their first B. Google, not Microsoft, is the hot place to work for young engineers. Every month it seems as if Google hires away one of Microsoft’s top developers.


Payne told Gates & Co. that he would need more than $100 million and 18 months to build his search engine; that he wanted the authority to pull the cream of Microsoft’s brainiacs into the effort. And Gates? He asked almost no questions, interrupting mostly to suggest people in Microsoft who might help. “It was reasonably obvious to me that we were going to have to depend on ourselves, not our partners, for search,” says Gates now. So when Payne finished, Gates signed off on one of the largest commitments for a new business in Microsoft history: Project Underdog was born.


Microsoft has a long, dramatic history of being a fast follower, rarely first in a market but ultimately providing the most accessible and practical solution, then outmarketing competitors. The company hasn’t always played by the rules, but when it has gone after a market, it has done so quickly and aggressively. Current and former executives of companies like Apple, WordPerfect, Lotus, Novell, and of course Netscape can attest to that.


Trying to build a Google killer, however, has turned out to be truly humbling for Microsoft. The effort has taken longer, cost more money, and exposed more big-company problems at Microsoft than anyone imagined. As Payne predicted, targeted online advertising has indeed become a gold mine. Still in its infancy, it’s one of the hottest sectors in high tech, a $5-billion-a-year market growing at some 40% annually. Yet no matter what Payne and his crew do, Google and Yahoo seem to do better. “I remember when [Payne’s team] showed off their first prototype in early 2004—people laughed because it was so much like Google,” says a former Microsoft executive. “We had copied them. That’s not how you lead.”


One reason Google has been rolling out so many new or improved products is that Schmidt understands that innovation is the only sure edge Google has. The moment Google allows itself to slow, Microsoft could overwhelm it.


Man… I wish my bosses are as focused on winning the battle. They have lots to learn from both MS’s and Google’s management and culture. Then again, these 2 giants hire the best people, managers and engineers included. We are hardly the best. We have lots to learn.


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