Gartner analyst David Smith said press coverage often gives the impression that Google is able to leverage the work of a four-person startup to give away productivity apps equivalent to what Microsoft (Quote) has spent hundreds of millions of dollars on developing -- and, of course, does not give away.
For example, Google has been expanding its suite of online productivity applications. It started last fall with the introduction of Google Docs and Spreadsheets. The Docs word-processing portion came from its purchase of Silicon Valley startup Upstartle.
"Browser-based applications are useful, but they don't offer everything a rich-client application does," said Smith. He also said that the popular perception that Google (Quote) is "going after" Microsoft's Office applications market is off the mark.
Google officials, including CEO Eric Schmidt, have said much the same thing, positioning Google apps as good for collaboration and other specific tasks.
According to Gartner analyst Allen Weiner, Google has an edge in that it focuses full throttle on consumer apps, whereas Microsoft often takes a different, more conservative approach with its enterprise software. And unlike Microsoft's effort to attract enterprise or corporate customers, Google's approach is to empower consumers, he said.
"But a consumer is not a one-dimensional person," he said. "It's someone who has a work and a home life. So you take a tool like Google's Blogger. You might use it at home and work and that's how you get the consumerization of IT."
Smith said it's actually much clearer that Microsoft is going after Google's phenomenal online ad business, noting that Redmond has said it's investing $2 billion in the advertising market.
Regardless of how much the two companies compete directly, both face significant challenges. The more mature and established Microsoft is at a "critical point in its life," said Weiner, "the days of Microsoft having the most influence in the industry is in the past. In some cases, Microsoft is even seen as an underdog."
He said the ascension of Ray Ozzie and other moves at the company show there's some serious soul-searching at Microsoft over how to capitalize on Web 2.0 and other technology areas. The recent licensing deal with Novell and its Windows Live initiative are signs, Weiner said, of a new Microsoft.
But Smith later noted that Microsoft may have become too mature a company in some cases to compete effectively with upstarts, such as Google.
"They're in a lot of different businesses with the implications of being spread real thin, but also they have lots of opportunities," he said. Weiner noted that MSN is one of the oldest and most powerful portals, but he thinks it needs a visionary czar to put all the pieces at Microsoft's disposal together and make it more of a media force.
While Vista and Office represent Microsoft's traditional cash engine, the Gartner analysts believe they will be the last OS and apps suite of their kind. "They will be engineered differently," said Smith. "The days of the five-year release cycle are behind us."
Both Microsoft and Google have a wide array of products and services, but the companies each rely on a few product areas for the bulk of their cash.
For Microsoft it's the aforementioned software; for Google it's the advertising engine and services that support it. He said a looming question is whether Google will be able to extend its success into mainstream video advertising. "Google bristles when you say it, but they really are a media company," said Weiner.
Looking ahead, both companies face challenges that include, but are far from limited to, competing with each other. Weiner noted that, years ago, Bill Gates famously made public his intent to make Microsoft a force on the Internet and redirected its considerable resources to make it happen. "We're looking for someone in media at Microsoft to do what Bill Gates did for the Web," he said.
Smith noted Microsoft has placed some big bets that have yet to pay off. The company's invested over $2 billion in DRM (define) but is far from getting that money back and may have alienated some people with its approach. "We're starting to see some content deals with other companies and potential payoff is still possible," he said.
Weiner said that even mighty Google has plenty of potential and real weaknesses, including the danger of it being a "one-trick pony" (i.e. search), the fact that it "believes its own hype," and the fact that it's primarily run by engineers and lacks a media visionary.
Google is also often perceived as a "bully," Gartner said, in its relationship with content providers, an area where Microsoft does a much better job.