GATES VS. GOOGLE - 5

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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)


The bureaucracy and even Gates himself have gotten in Payne's way. Underdog has been slowed by turf battles within MSN and among the company's six other business units. Microsoft executives' compensation is based on the success of their own organizations, which means, says a former exec, that every interaction Payne's team has with, say, the Windows business unit comes with strings attached. Payne and his team have tried to speed development by buying their way into the search game, but something has always thwarted that approach. In spring 2003, Payne pitched Gates on buying Overture, a move that would have given Microsoft search engine technology out of AltaVista as well as an advertising business that was generating huge profits. But Gates shot the plan down, convinced that Microsoft could do a better job for less money on its own. Instead, Yahoo bought Overture, a move that, together with its earlier purchase of Inktomi, enabled it to catapult itself successfully into the search game in a year.
In fall 2003, Microsoft briefly considered buying Google, only to realize that even if Brin, Page, and their board could have been persuaded to sell—which seemed unlikely—Microsoft would have been left to explain to the world why it was now running a search engine built entirely on Linux instead of Windows. Even when it did buy a company—Lookout—in June 2004 (Lookout had mastered fast Outlook e-mail search), it didn't move quickly enough to expand the software to search the whole desktop.
The price for being slow-footed became abundantly clear last fall: Google beat Microsoft to market with desktop-search software by two months. The news ripped through Microsoft with titanic force. Everyone from Gates on down scrambled into meetings to assess how good Google's product was. Not especially, they decided. Even so, it dealt a blow to their pride. "Here Microsoft was spending $600 million a year in R&D for MSN, $1 billion a year for Office, and $1 billion a year for Windows, and Google gets desktop search out before us? It was a real wake-up call," says an exec. "It was the first time many people in the corporation understood that Google was more than just a search engine. People said, 'If they can do desktop search, what prevents them from doing a version of Excel, PowerPoint, or Word, or buying Star Office [from Sun Microsystems]?' "
What does Google make of Microsoft's growing animosity and paranoia? Although neither the co-founders nor CEO Schmidt would comment for this story, Schmidt told an audience of Internet pioneers at UCLA last fall, "One of the criticisms that the media makes is to compare Google to previous-generation companies. Google is trying to solve the next problem, not the last problem." Privately, Google's executives understand exactly the impact they are having on Gates and his team. They project a carefree image in part because it makes business sense. One blunder by Netscape was that it let Andreessen tell the world how he intended to put Microsoft out of business. Count on Google not to repeat that mistake.
Remember, many of the most influential people at Google are hardened Microsoft warriors. Schmidt battled Gates as CTO of Sun Microsystems and CEO of Novell in the 1990s. Omid Kordestani, Google's head of ad sales, was a top executive at Netscape. Three of Google's directors, Ram Shriram, John Doerr, and Michael Moritz, have been on the front lines of Silicon Valley's war with Microsoft over the years. "Microsoft can literally spend a billion dollars on this if they choose. We take them very seriously," says a Google executive. One reason Google has been rolling out so many new or improved products is that Schmidt understands that innovation is the only sure edge Google has. The moment Google allows itself to slow, Microsoft could overwhelm it.