I agree with much that has been said here... the value of having competition particularly, the relative strengths of the two companies, and the importance of Apple in the dynamic. Here are some nuances:
Google is more vulnerable, and Bing could easily displace enough Google income to cause large cutbacks on the Google side leading to a downward spiral of Google innovation, and more especially, the Google infrastructure, which allows it to host so much content at prices so low that advertising can pay for it.
More importantly, who is Microsoft's largest customer? Without seeing their books, it would almost certainly be the Federal government who buys thousands of copies of Windows and Office on a fairly regular basis for each of the thousands of smaller organizations that make it up. This forces the the purchase of those products by all the contractors working for the Federal government, all but forces States to follow suit, then localities, and then the myriad of companies doing business with those. If the federal government today announced a policy to use web based services over Windows (not necessarily Google, but perhaps using internal servers) then the Windows/Office franchise would be over in months, generating too little revenue for it to be worth Microsoft pursuing other than as a money losing side project such as Xbox.
This could actually happen, and should. A server-centric OS and Office capability, even from Microsoft, would save billions of dollars in staffing costs for the federal government. It would initially produce far less revenue for whoever the vendor of these services might be too, but then it is a growing market, and as more people the world over use computers, one of the biggest disincentives is still the total cost of the proposition, which needs to come down one way or another.
Microsoft is said today to be announcing their own online alternative to Office. If not today, eventually, and when it happens it will mark the start of Microsoft eating into its own profit margins.
And THAT, my friends, is the importance of the Google moves, not just this one, but all of them . Google, Apple, and others, particularly web-based products have forced Microsoft to think outside of its comfort zone.
A few years ago a government executive could threaten to have me fired for suggesting any alternative to Windows/Office in any of the organizations meeting. Today, I don't think that attitude would fly (nor should it have then, but it did). What individuals use at home, and what kids at schools are exposed to, and what the trade publications continue to drone on about has, eventually an overwhelming impact one what gets discussed in strategy sessions within our massive federal bureaucracy. Some day, just as the switch was flipped to favor Word over Wordperfect, our countries biggest “business” will wake up to an alternative to Windows (and it may well be a Microsoft alternative so as to stay in their comfort zone) but it is almost certainly true that that alternative will not be as profitable to Microsoft, while at the same time will have little or no effect on Google. Whatever Google can do to accelerate this shift is to their benefit.
The bigger shift, what the world, particularly China and India decide to do with their computing infrastructure is even more important in the long run and one thing is almost certain, that is that they will not buy the Windows/Office paradigm as it is currently constructed. As much as Microsoft doesn't like the coming change, they will be forced to take part in it.
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