Inside Microsoft's War Room by Steve Baldwin , Monday, July 7, 2008
THE TITANIC CLASH BETWEEN MICROSOFT (aka "The Evil Empire") and Google aka "The Don't Be Evil Empire") is accelerating, and while most attention focuses on the ongoing on-again, off-again Yahoo deal, the most significant elements of Microsoft's strategic plan are being laid irrespective of the deal's ultimate outcome.
What are these elements? What are their chances of success or failure? Let's take an imaginary walk through Microsoft's War Room, spend some time studying the "threat board," and assessing the major threats and opportunities as they might be perceived by a Redmondian. (Note: all points in this article are conjectural and have not been conveyed or even suggested by any living and breathing Microsoft employee).
Contingency Plans for a Google-Ruled Web While most outsiders accept the proposition that Microsoft, with or without Yahoo, will do what is required to restore some semblance of parity to Web-based search queries, various contingency plans have been prepared to deal with a Web ruled by Google. These plans will only be implemented if Microsoft is unable to succeed in any of the following short-term tactical objectives, which include Delay and Defend (by lobbying aggressively against a Yahoo-Google search alliance), Acquire and Assimilate (by buying several large chunks of non-Yahoo traffic), and Bribe and Switch (using its new Cashback service). I very much doubt that we've seen all of these tactical objectives emerge yet.
One obvious plan that Microsoft hasn't tried or even hinted at might be called "Subsidize and Subvert," in which Microsoft would extend a reward offering to Google's thousands of Adsense publishers, enticing them to switch to a Microsoft contextual network through a direct subsidy or revenue guarantee. After all, Adsense contextual revenue constitutes 32% of Google's cash flow, and many of Google's long-tail partners have long ached for a more lucrative deal. Frankly, I find it remarkable that Microsoft didn't target Google's partner network a long time ago.
Let us assume, however, that all of the aforesaid tactical objectives fail, and Google (or Google-Yahoo) continue to grow query and click share to 90% and above within the next year or so. At this point, Microsoft would be forced to execute one of the following contingency plans:
Domination of the air. Most observers agree that the mobile era we're about to enter will represent the biggest platform change in computing history. Even today, roughly a billion mobile devices are shipped each year, and, as pointed out by experts such as AMR Research's Jonathan Yarmis, this number both dwarfs the roughly 100 million PCs sold annually and creates a much-faster evolving computing market (due to the short 21 month life cycle of such devices). The applications-driven nature of these devices creates an opportunity for an applications/OS vendor to dominate delivery of information services in a way that may replicate the control Microsoft enjoyed in the PC era. And while open source advocates like to point out that operating systems such as Symbian and Android provide more opportunities for innovative application development than a closed OS like Windows Mobile, business users are less interested in new and cool applets than in seamlessly extending their work environment to the mobile sphere. Microsoft can gain dominance by providing the best mobile integration of its industry standard Office productivity suite. After all, the 2001 consent decree that has been prohibiting it from integrating certain applications into its desktop OS does not extend to the mobile environment.
Complete control of the home. Xbox is the "Trojan Horse" whose characterization as a gaming console obscures the fact that it is a powerful multipurpose device capable of serving up the entire gamut of interactive services, including IPTV, VOD, media serving, and other next-gen entertainment content. Query-based search will be the primary interaction mechanism for accessing content on the Xbox, and Microsoft (through its internal efforts or through acquisitions) will control the serving of traditional text-based units, modular IPTV spots, rich media, and in-game advertising (projected to be worth about $2.5 billion annually by 2010). This new den-based computing platform is rapidly becoming, in the words of an associate of mine, "the new AOL" in the sense that it functions as a primary place for users to gather, surf, play, search, communicate, and shop. With worldwide sales at 19 million units (and more sales coming thanks to last week's price cut), Microsoft has made a long-term investment in a Google-proof fortress that can only be penetrated if Google buys Nintendo or Sony.
So there you have it. If Microsoft is unable to defeat Google in Web search, it will strategically retreat to higher ground (mobile and the home) and fight a long withering battle where Google's control of the territory is weakest. It is impossible to know at this juncture what this conflict's resolution will be, how it will alter the digital marketing ecosystem and change our own roles as marketers within it -- but it is our dollars that will ultimately separate winner from loser.
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