To put things into perspective, let's imagine that Microsoft never existed. The world of PC computing would be drastically different. In fact I would even wager the growth of the Internet would have been drastically different since Microsoft pioneered many developments in supporting TCP/IP, modem drivers and integrating a web browser into Windows.
Now, if we were to hypothetically assume that Google never existed, what would we be missing? An efficient search algorithm that produces better results than competing search engines and a major push into online keyword advertising.
When looking from my perspective, should Google have a market cap ($118 billion) roughly half that of Microsoft's ($248 billion)?
Of course the Google bulls point to the company’s future potential, but I am never one to bank on guesses. History has shown, with Microsoft being no exception, that it is hard to diversify from a company’s core competency. Yet the market continues to overinflate the value of companies with hot new technology. I believe the market never really learned from the .com days and is still primarily driven by greed. Google’s launch of other services, such as the company’s Instant Messaging product and Google finance page have been subpar at best.
My feeling is that Google has far more vulnerabilities than Microsoft. While Google’s search technology is good for today’s version of the web, there is no telling how it will perform with tomorrow's. The Web continues to adapt to increases in bandwidth. What happens if the majority of sites are powered by interactive Ajax applications and replace the markup code found on most websites?
There are a number of 'what ifs' that can immediately replace Google’s dominance as a search engine leader. I can already give you one situation where Google is struggling with its search technology. Google recently launched a blog search feature, but when compared to blog search leader Technorati, Google’s results were found to be updated less frequently and lacking many of the features found in Technorati’s approach to searching blogs.
Here is a quote from an INC. article about the comparison:
The prototype of Google’s Blog Search went live at midnight on September 14, 2005. Most of Technorati’s work force of about 30 was online, waiting. Sifry spent about half an hour checking it out, then posted a welcome note to his new competitor on his blog, including some friendly trash-talking about all the things Technorati could do that Google couldn’t, such as image finding. Then Sifry went home and got some sleep.
There were no big surprises. Google Blog Search, he concluded, was solid but simple. It seemed to have a hard time keeping up with the dynamism of the blogging world; many search results it displayed were more than 24 hours old, which is ages in the blogosphere.
When I look at Microsoft, I see a company that has far less vulnerability than Google. Microsoft has banked on its Operating System technology, but if better technology were to exist, Linux, BEOS, Apple’s OSX etc., it wouldn’t make much of a difference at this point. Microsoft has ingrained the process of using application windows and its file system for organizing information into almost every PC user on the planet.
I believe Microsoft is future-proof at the moment, until the process dramatically changes. Any company that attempts to release an OS with a similar style of accessing and organizing information will not succeed even if the technology is better, since Microsoft enjoys such a comfortable lead.
Google needs to create a unique process -- not just unique technology -- that will future proof the company before I would look at it as a long-term investment.
[Full disclosure: Author is long shares of MSFT]