GATES VS. GOOGLE - 2
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Search and Destroy
Bill Gates is on a mission to build a Google killer. What got him so riled? The darling of search is moving into software—and that's Microsoft's turf.By Fred Vogelstein
(Photo: Newscast)
Just how big is Microsoft's Google problem? First, a reality check: Microsoft, with nearly $40 billion in revenues, is ten times the size of Google. It's sitting on $34 billion in cash, generating $1 billion in new cash a month, and, thanks to its core Windows, Office, and server products, growing at 15% a year, with operating margins above 30%. Most companies would love to have such numbers.
But Microsoft isn't exactly in fighting trim. Its ambitious new operating system, code-named Longhorn, is more than a year late, even after having been scaled back. Linux, the free operating system that Gates once scoffed at, is fighting Microsoft for share in both the server and desktop markets, forcing the company to do the unthinkable: offer customer discounts. Last year it had to spend $1 billion to rewrite thousands of lines of code to make its programs less susceptible to viruses. Its Xbox gaming console is winning raves from players but has yet to make serious money. Meanwhile, Apple has stolen the show in online music with its hugely popular iPod and iTunes Music Store. Plus, the recently released Firefox browser, which can be downloaded free, has forced Gates to reconstitute an Internet Explorer development team. Indeed, four years have passed since Microsoft released a piece of software that generated the kind of buzz Google seems to generate every month.
Dozens of current and former Microsofties say that Google's success is causing a corporate identity crisis. Gates basically created the notion that success in software is a function of the IQ of your team, and for years Microsoft has prided itself on having the smartest employees on the planet. Now many of those overachievers feel as though they've gotten their first B. Google, not Microsoft, is the hot place to work for young engineers. Every month it seems as if Google hires away one of Microsoft's top developers. Before Google's IPO last fall, Microsoft executives dismissed this brain drain as a function of greed. But when the exodus continued after the IPO—especially when Marc Lucovsky, one of the chief architects of Windows, bolted for Google—it was clear that Microsoft had a bigger problem on its hands. As of March, roughly 100 Microsofties had left for its search nemesis.
Google has even had the nerve to set up an office five miles down the road from Microsoft's Redmond, Wash., headquarters. Its opening last November was supposed to be an invitation-only affair, but word spread and by 7 p.m. the place was swarming with dozens of uninvited Microsofties—casually, and sometimes not so casually, looking for work. The Google migration has gotten so bad, says a former Microsoft employee, that when he told his bosses and colleagues he was leaving earlier this year, "the first question out of their mouths was 'You're not going to Google, are you?' " (He was not.)
Perhaps worst of all, Google is building programs that people at Microsoft prefer to their own. Microsofties have always been voracious samplers of competitors' products; many used the Netscape browser for years until Microsoft's Internet Explorer was good enough. But today, stop almost anyone on campus and ask which e-mail or photo or blogging program he uses, and the answer will invariably be Google's. No wonder Bill Gates is mad.
To understand why micro- soft is having so much trouble catching Google, it helps to hear the story of Chris Payne. He had been watching Google closely for months by the time he got Gates' ear in February 2003. A newly minted vice president charged with overseeing a grab bag of web products for MSN, Microsoft's web portal, Payne stepped to a podium in the conference room in building 36 at the Redmond campus. Peering at his audience—Gates, Ballmer, and about two dozen other Microsoft brass—he launched into the most important pitch of his career. He asked them to approve a massive push into the search business—a Google killer.
Search and Destroy
Bill Gates is on a mission to build a Google killer. What got him so riled? The darling of search is moving into software—and that's Microsoft's turf.By Fred Vogelstein
(Photo: Newscast)
Just how big is Microsoft's Google problem? First, a reality check: Microsoft, with nearly $40 billion in revenues, is ten times the size of Google. It's sitting on $34 billion in cash, generating $1 billion in new cash a month, and, thanks to its core Windows, Office, and server products, growing at 15% a year, with operating margins above 30%. Most companies would love to have such numbers.
But Microsoft isn't exactly in fighting trim. Its ambitious new operating system, code-named Longhorn, is more than a year late, even after having been scaled back. Linux, the free operating system that Gates once scoffed at, is fighting Microsoft for share in both the server and desktop markets, forcing the company to do the unthinkable: offer customer discounts. Last year it had to spend $1 billion to rewrite thousands of lines of code to make its programs less susceptible to viruses. Its Xbox gaming console is winning raves from players but has yet to make serious money. Meanwhile, Apple has stolen the show in online music with its hugely popular iPod and iTunes Music Store. Plus, the recently released Firefox browser, which can be downloaded free, has forced Gates to reconstitute an Internet Explorer development team. Indeed, four years have passed since Microsoft released a piece of software that generated the kind of buzz Google seems to generate every month.
Dozens of current and former Microsofties say that Google's success is causing a corporate identity crisis. Gates basically created the notion that success in software is a function of the IQ of your team, and for years Microsoft has prided itself on having the smartest employees on the planet. Now many of those overachievers feel as though they've gotten their first B. Google, not Microsoft, is the hot place to work for young engineers. Every month it seems as if Google hires away one of Microsoft's top developers. Before Google's IPO last fall, Microsoft executives dismissed this brain drain as a function of greed. But when the exodus continued after the IPO—especially when Marc Lucovsky, one of the chief architects of Windows, bolted for Google—it was clear that Microsoft had a bigger problem on its hands. As of March, roughly 100 Microsofties had left for its search nemesis.
Google has even had the nerve to set up an office five miles down the road from Microsoft's Redmond, Wash., headquarters. Its opening last November was supposed to be an invitation-only affair, but word spread and by 7 p.m. the place was swarming with dozens of uninvited Microsofties—casually, and sometimes not so casually, looking for work. The Google migration has gotten so bad, says a former Microsoft employee, that when he told his bosses and colleagues he was leaving earlier this year, "the first question out of their mouths was 'You're not going to Google, are you?' " (He was not.)
Perhaps worst of all, Google is building programs that people at Microsoft prefer to their own. Microsofties have always been voracious samplers of competitors' products; many used the Netscape browser for years until Microsoft's Internet Explorer was good enough. But today, stop almost anyone on campus and ask which e-mail or photo or blogging program he uses, and the answer will invariably be Google's. No wonder Bill Gates is mad.
To understand why micro- soft is having so much trouble catching Google, it helps to hear the story of Chris Payne. He had been watching Google closely for months by the time he got Gates' ear in February 2003. A newly minted vice president charged with overseeing a grab bag of web products for MSN, Microsoft's web portal, Payne stepped to a podium in the conference room in building 36 at the Redmond campus. Peering at his audience—Gates, Ballmer, and about two dozen other Microsoft brass—he launched into the most important pitch of his career. He asked them to approve a massive push into the search business—a Google killer.
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