Google Applies Itself - Week of 03/01/2007

Google Applies Itself - Week of 03/01/2007
Last week Google released Google Apps Premier Edition, an 'industrial strength' version of its free hosted applications suite. The earlier version, which is free, included Gmail accounts, a shared calendar, Google Talk instant messaging, access to Google Docs & Spreadsheets and a Web page creator. The new product, which is aimed at the enterprise, costs $50 a year per user and adds a 99.9 percent uptime guarantee for e-mail, additional e-mail storage, and new administration and business integration features.

Reaction to the release has been mixed. On the one side are those that believe this to be a serious threat to Microsoft's Office suite and their dominance in this arena. This camp believes the success of hosted applications such as those provided by salesforce.com, indicates a waning of concerns that existed for this model when it was first introduced a decade ago. Combined with a younger generation of users more comfortable with the Internet as a delivery mechanism, online hosted services will become mainstream. The other camp may not deny that the move to hosted applications is on the rise, but they hold that there are serious issues, primarily relating to security and performance, which need to be resolved before adoption by enterprises becomes widespread.

The reality of the situation is that there is a move toward hosted applications, one that will increase as familiarity grows and concerns are allayed. To deny that seems to be denying the future, but to think that the first iterations of a replacement to that model are themselves the future is not very realistic. Google Apps Premium Edition as well as Microsoft's Windows Live offering are the tip of the iceberg; not a whole lot has changed, it's just that the future has become a bit more clear and present.

Google CEO Eric Schmidt says, "Our product is so cheap that it's sort of no-brainer to try it out." However, the price difference between Google's offering and Microsoft's may not be as wide as it appears. Though the advertised price for Microsoft's Office Suite is indeed higher than Google's $50, enterprises often negotiate this down. Forbes refers to research released last year by Merrill Lynch analyst Kash Rangan which indicates, "that the average corporate cost for Office works out to about $60 to $120 annually per user, assuming the software is used over a two- to three-year cycle." Also, as Forbes aptly points out, in the end, "Price is rarely the only concern of large companies when they are deciding which software products to buy. Security, reliability and performance also sway corporate buying decisions."

There may be a change in the attitude toward applications such as Google's, however, these other concerns are still very real and do not belong to just a few. BusinessWeek states, "Many large corporations are wary of having an e-mail system run outside their own walls, where they can't be sure it's secure from hackers and spies. And even Google concedes its services don't have all the bells and whistles of Microsoft's products, such as centralized e-mail backups that help them comply with regulatory rules." Mark R. Anderson, an analyst at technology consulting firm Strategic News Service, concurs, “Google will have to prove itself in terms of security and in terms of quality."

To prove its product is worthy Google has touted the fact that it has over 100,000 small and medium sized businesses already using its hosted Apps solutions, and that this list includes some big names such as GE and Procter & Gamble. This was noted by BusinessWeek, "It's testament to Google's popularity that even though Google Apps is still in trial mode, hundreds of thousands of users at thousands of organizations are already using it. That includes a few big ones." However, for the most part, these are users of the previous version of the product, not the full service model, and though the numbers may be indicative of Google's popularity, the true testament will be how many businesses sign on to the new model, as well as how many continue to use it and to what degree; trials fall through all the time. Also, though 100,000 is a large number it should be put in perspective. According to the New York Times, "Google said more than 100,000 small businesses had been using Google Apps for Your Domain, as the earlier package of e-mail and messaging programs was known. Docs and Spreadsheets had 432,000 users in December, according to Nielsen/NetRatings. Microsoft says Office has 450 million to 500 million users."

In addition, Google also has a long way to go before such a product can add to its bottom line. According to Forbes, "Software licensing accounted for slightly more than $100 million, or 1 percent, of Google's $10.6 billion in revenue last year." It takes a lot of $50 to put a dent in Microsoft's numbers or to raise Google's one percent. As Google tries to gain a foothold and raise its numbers, the company may find themselves challenged to make the product pay for itself. Donna Bogatin wrote on her ZDNet blog, "The Google version of Microsoft Office may be housed in the Google cloud, but it nevertheless must support service delivery on the costly real-world ground for telephone support, service guarantees . . . As Google acquires customers, Google’s incremental costs increase, and the more Google Apps users use the service, the more Google’s cost of delivery increase."

Forbes refers to AMR Research analyst Jim Murphy, "While Google's latest foray into the corporate software market seems unlikely to topple the status quo right away . . . it's only a matter of time before the Mountain View-based company becomes a major player." Though this area may be newer to them than search and advertising Google already is a major player, and they may just have the capital, the brand recognition, and the following to successfully branch out in an endeavor such as this. However, success is neither inevitable nor immediate; as Murphy points out later in the article, "This is just the beginning . . . The real impact of what Google is trying to do probably won't be evident for another five years." Five years is a long time in this arena, particularly when the major competitor is already established and has a similar product in place; according to BusinessWeek Windows Live has some 250,000 small business users. Half a decade from now the way users, many of whom do not yet exist, interact with their data may have drastically changed, who controls that bridge is still very much up for grabs.