Microsoft Office, Google Apps Ready for a Business Brawl

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A survey of 800 IT managers worldwide in January 2010 by ITIC (Information Technology Intelligence Corp.) shows that 4 percent of businesses are using Google Apps for their main e-mail and productivity software. The survey also shows that Google Apps is most widely adopted at small businesses.

The barrier to entry for Google, says McLeish, is Microsoft's vast experience serving and supporting enterprises. "The foundation has been laid for Microsoft in the enterprise," she says. "It says a lot that it can still demand high prices for the full versions of Office when Google Apps are free or much cheaper."

Microsoft is quick to call out that it is a company built for businesses, while Google was built for consumers.

"We'll ask customers: Are any of these new entrants really committed to online productivity services for the enterprise?" says Ron Markezich, Corporate VP of Microsoft Online Services. "Are they making investments in the enterprise for the long haul? It's taken Microsoft 15 years to prove that we are committed to serving enterprises and now of course that's a large part of our business."

Big Fear: Cannibalize Office, Fail to Kill Google

But even with Google's tiny presence in the enterprise, it is still a giant brand name with deep pockets and products that most consumers (who also work at enterprises) are familiar with, particularly Gmail.

It may not be a true threat to Microsoft's enterprise customers now, but Google's cloud-based productivity apps have forced Microsoft to change its business model. Microsoft has created online versions of its software products, dropped prices and must justify to enterprise customers why they should pay top dollar for Office and Exchange when they could "Go Google" and save money.

This new dynamic has created a difficult conflict for Microsoft where it has to promote cloud-based apps to the detriment of its franchise desktop software products, says veteran tech analyst Roger Kay.

"Microsoft needs to be successful with Web apps, but not too successful," says Kay. "They're not getting full revenue from its cloud apps so they need to make them lightweight enough that people will upgrade to the full paid product, which is Microsoft's cash cow. Microsoft will be reluctant to give up on anything that makes them money."

This conundrum is not an easy one for Microsoft resolve, says Kay, adding that the worst case scenario for Microsoft is that Office Web Apps and Exchange and SharePoint Online take off and cannibalize Microsoft's client software, yet still fail to kill off Google Apps.

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