Early Inroads

By Baselinemag  |  Posted 2007-08-22 Print this article Print

The search giant's release of free spreadsheets and word processors has been a hit with small businesses. But will it play in larger enterprises?

Early Inroads

To date, Google Apps has had a minimal impact on Microsoft's core software business. It would be easy to have a different impression of this, with all the buzz that Google generates. But Microsoft's revenue grew 15% to $51.1 billion in its latest fiscal year, with a lot of the growth coming from Office and the company's new Vista operating system. It still has between 95% and 98% of the desktop market, according to Forrester Research.

To the extent that Google has any presence at all in productivity software, it is in segments of the market that are not particularly revenue-rich.

Tens of millions of individual consumers have signed up for Gmail, which now comes with almost 3 gigabytes of storage. And more than 100,000 organizations have signed up for Google enterprise apps, mostly universities, non-profit organizations and small businesses.

It's impossible to know how many of the businesses are actually paying Google its stated fee of $50 per user per year, as opposed to using the standard version, which is free. (Users of the standard version get less storage space and a lower level of service, and don't have the option of shutting off advertising.) Google doesn't break out that number, but it's clearly a drop in the bucket. The company still gets more than 98% of its revenue from search-related ads.

The thing that has Microsoft concerned, of course, is not Google's existing market share but the company's potential, especially among small and midsize companies that occasionally wince at Microsoft's licensing fees.

For example, Shaklee, a privately held nutrition company in Pleasanton, Calif., has been testing Google apps for the last few months and hopes to be in a position three years from now to replace its internally administered Microsoft software with applications hosted by Google. In theory at least, Chief Information Officer Ken Harris could end up paying $50 a head for his roughly 750 employees—less than $40,000 a year. By contrast, a volume licensing contract with Microsoft for the standard version of Office (no Access database, no FrontPage Web creation tool) would probably run Shaklee about $350,000 annually. "The economics might be very favorable," Harris says.

A hosted solution from Google might also let Harris turn his attention to more strategic things than updating directories and responding to requests from employees for more storage. "Being at a midsize company, I have responsibility to cover the same breadth of applications as at a large company," says Harris, a CIO at various divisions of PepsiCo from 1988 to 1998 and CIO of Gap from 1999 to 2004. "I don't have to go as deep, but I have to go pretty broad."

While it's mostly small companies for now, some big companies are also evaluating Google Apps, partly as a way to distribute e-mail to pockets of workers who don't have it—field workers and those on the factory floor, for instance.

Some other big companies are using Google Apps as a weapon against Microsoft. "They're saying they could use this sort of like the jawbone of an ass to loosen Microsoft's negotiating posture," says Gartner vice president Tom Austin.

The threat may not be serious in the case of the many enterprises that have written applications on top of Microsoft's .NET framework, or that use Excel, for instance, to connect to SAP. Such enterprises, in giving up Microsoft's Office suite, would incur breakage costs. But other companies—the ones using Microsoft technology out of the box—might not. "Some of them might even walk away," Austin says.


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