Why I'm Betting on Google Over Microsoft

Includes: AABA, GOOG, MSFT
by: Vikas Agarwal

In the past few years for Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG) has graduated from a minor irritation to fierce competition that is threatening the software giant's very relevance. Now Microsoft is baying for Google's blood. They want to take the fight to Google's footstep and they believe that Yahoo! (YHOO) will be their Achilles heel.

Every year Warren Buffet auctions a lunch date with him for charity. Last year this date fetched almost half a million dollars. If Mr. Buffet decides to do the same this year, I would suggest Steve Ballmer bids on it and wins it no matter what. Warren Buffet said, "If you give me 100 Billion dollars and tell me to take away the leadership position of Coke (NYSE:KO), I will return the money. It cant be done." Similarly, 5 years ago if you had asked Mr. buffet the same question about Windows, he would have said the same thing. What applies for Coke and applied for Microsoft five years ago, applies for Google right now. No matter how much money you throw at it, you cant displace Google from its search leadership position.

Businesses like Coke, Microsoft Windows and Google search can not be destroyed by competing on the same grounds. They are destroyed only when they are no longer relevant. Probably that's why Mr. Buffet prefers companies like Coke over Microsoft or Google, because no matter what OS you use or search engine you use, you will still be drinking Coke.

Despite the current slowdown in its earnings, I believe that Google is a great investment opportunity. Google detractors call it a one-trick pony but it's no ordinary pony, it's a unicorn. Internet is already such a big part of our lives and soon will become as ubiquitous as air. Think about internet becoming so pervasive in countries like India and China and the magnitude of opportunity just blows my mind.

Another point to note is that Google probably has the highest concentration of software engineering talent. I know first hand that some of the most talented people I knew at Microsoft are now working for Google. Is it a coincidence that Google hired mostly the engineering talent of Microsoft and not the management talent? Microsoft upper management is mostly comprised of Microsoft veterans well entrenched in the Microsoft system and not so fit to survive in any other ecosystem. There seems to be a severe talent crunch at Microsoft considering that it just slipped to the 86th best place to work, from 45th last year whereas Google remains numero uno.

With Google's amazing software talent and its commitment to let employees spend 20% of work time on their pet projects, it''s only a matter of time until Google finds alternative revenue sources. After all, it took a long time for Microsoft to turn into a two trick pony from a one trick pony.