Advisory Report

Google vs. Microsoft:

Showdown in the Cloud
September 30, 2010

 Issue

Forget the desktop; the IT battle today is for the entire workplace. This presents some interesting oppor-
tunities for competitors able to deliver the kind of flexible productivity solutions businesses look for now.
However, the fight is complicated by the explosive growth in the use of mobile computers, sophisticated
smartphones, and other handheld devices that has transformed a workplace that once was largely con-
fined to the four walls of an office into a more elusive space – one which can be virtually anywhere, from
a meeting room down the hall or a home office to an airport, a customer site, or anywhere in between.
Amy Larsen
DeCarlo So, while the core feature set requirements of office productivity applications are not radically different
Current Analysis from what they were five or ten years ago, the expectation for access to these capabilities is. This need
Principal Analyst,
for greater accessibility, combined with some severe IT budget pressures in recent years, translates into
Security and Data
Center Services greater pressure on even the most dominant provider – Microsoft – to transform how it delivers office
productivity and collaboration solutions.
Simply put, customers fed up with complex and costly licensed software deals are now pushing applica-
tion providers to rise to the occasion by delivering the collaborative and productivity features associated
with traditional licensed applications through the cloud using more cost-effective subscription-based
pricing models. This has opened up the gate to a host of new competitors, most notably over-the-top
players such as Google that are plying the advantage excess capacity gives them in terms of scale to at-
tempt to unseat Microsoft from its reign as king of the office suite market.
Microsoft, which has long dominated the desktop with its conventional software licensing model, has
stepped up with its low-cost Business Productivity Online Standard suite (BPOS) and a very aggressive
channel strategy. The result is a highly charged and very dynamic competitive space where two compa-
nies – Google and Microsoft – are defining the playing field. The two providers are proving to be masters
of the game as they rework pricing, extend security and stability controls, and continue to innovate their
feature sets. But buyer be aware; Google Apps and Microsoft BPOS are not the only games in town.
There is plenty of room for other providers, including some big names such as IBM and Oracle, to play a
spoiler role.
This report looks at how Google (See “Google – Google Apps,” September 17, 2010) and Microsoft
(“Microsoft – Microsoft Business Productivity Online Suite (BPOS),” September 17, 2010) are crafting
their respective go-to-market strategies to expand their reach in the still developing market, as well as the
part alliance partners and other competitors may play in the future in further transforming the market.

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 Advisory Report

Report:  Current Perspective

Google vs. Microsoft: Cloud services are seemingly everywhere now, but our arrival at this point was hardly an overnight
Showdown in the journey (see “Playing in the Cloud: New IT Services Reality or More Vapor in an Already Foggy
Cloud Economy?,” March 19, 2009). Looking back just ten years, many businesses saw applications
outsourcing as an all-or-nothing proposition. Public and private sector organizations were often
Business Network
and IT Services reluctant to let an outside provider manage discrete applications because of dual reliability and
control concerns.
However, continued cost pressures and limited internal resources forced companies to give discrete
hosted application service options a second look. Messaging and other collaboration applications
that play a crucial role in corporate productivity were obvious candidates for outsourcing, because
though the communications they support are operationally important, they do not represent a core
competency for the business ready to turn over their delivery and management to a third-party
hosting provider. Even some companies reluctant to hand over the keys to applications to a third
party saw the upside to out-tasking the delivery and management of e-mail and collaboration
software.
This acceptance paved the way for many providers such as Apptix, Intermedia, and Rackspace to
build thriving hosted messaging practices over the last decade, many of which employed virtualized
infrastructures to help the cost and capacity requirements of price-conscious clients (see “Hosted
Messaging Grows Up,” July 29, 2008). Though the these hosted solutions were typically targeted
toward small businesses, IT solution providers and carriers won some substantial contracts to
support thousands of seats for large corporations that ran the numbers and saw the opportunity
to take out capital expenses, cut support costs, and eliminate licensing headaches by going with a
subscription-based service.
Continued advances in virtualization, security, and other supporting technologies, along with
increased consumerization of IT and maturing provider business models, made the emergence of
software-as-a-service (SaaS) a natural progression. As a layer of the cloud, SaaS employs many of
the elements that define this on-demand service model, including an infrastructure that uses online
delivery and virtualization to increase accessibility and efficiency, bring down costs, and offer self-
service capabilities and predictable pricing.
Collaboration suites – and their companion office productivity applications – are especially well
suited for SaaS delivery in that these are mature categories of standard software solutions with
minimal customization requirements, and they have associated data that is far more portable than
some enterprise applications. Existing customers of the Microsoft Office/Lotus Notes office suite
model were also more than ready for a less expensive alternative to traditional hosted or do-it-
yourself (DIY) delivery. Add a big installed base – and an even bigger prospect pool of customers in
emerging markets – and moving the workplace apps to the cloud became a no-brainer.
Projections of a booming multi-billion SaaS market had a diverse set of software vendors and IT
service providers lining up to deliver cloud-based collaboration and productivity applications.
Microsoft and rival Google are front and center in the market today. The two are laying the
foundation for a dynamic if still young market, beginning with Google’s disruptive $50 per user,
per year pricing model, which upended more conventional schemes almost overnight. While
Google is often derided as being too consumer-focused to be taken seriously as a contender in the
enterprise space, the company has the scale and some engagements with large customers to counter
that attack. Microsoft for its part is furiously building out a channel to support global delivery
of its BPOS offer. Similarly, Microsoft, which was ridiculed initially for being too slow to SaaS,
has played a fairly fast game of catch up even as, like Google, it continues to work to improve the
stability of its delivery and refine components of its business model.
To the point on service stability, both companies have come under fire in the last year for service

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 Advisory Report

Report: instability, including most recently a series of high-profile outages that plagued Microsoft BPOS
in the summer of 2010. These incidents point out infrastructure weaknesses that could put future
Google vs. Microsoft: growth at risk.
Showdown in the
Cloud However, there is no reason to think that with all the resources at their disposal, Microsoft and
Google will not be able to overcome their technical issues. Thus far, all signs point to each gain-
Business Network
and IT Services ing some significant traction in the segment. Though both offer only general information about
their respective installed bases (e.g., 40 million for Microsoft Online Services, which in addition
to BPOS includes Microsoft Live Meeting among other services) and how revenues segment
by customer size and geography, Microsoft and Google appear to be steadily gaining enterprise
customers. These include some large engagements such as Genentech, Ahold, and Salesforce.com
for Google and SADA Systems and Scripps Network Interactive for Microsoft.
The resulting showdown is emblematic of the SaaS segment as a whole – contentious but less vola-
tile than in the past. While the workspace SaaS market is still evolving, the segment is approaching
a phase of new maturity where customers are expecting – if not necessarily getting – enterprise-
grade service.
Collaboration and Productivity
So, how do the companies’ approaches to the cloud stack up against each other today, starting with
the packaging, features, and capabilities of their online productivity suites? E-mail is at the heart of
both BPOS and Google Apps, with the now very-familiar Outlook and Gmail messaging applica-
tions serving as foundational elements for the Microsoft and Google online suites, respectively.
Both offer comparable storage (25 GB per account) and similar mobile device access. However,
they diverge in the specific applications they include and the way they are packaged.
Microsoft offers three variations of BPOS; two versions, BPOS Standard (BPOS-S) and Deskless
Worker, are delivered from a multi-tenant infrastructure, while BPOS-D runs in a dedicated
environment. BPOSS and BPOS Dedicated incorporate e-mail, instant messaging, calendaring,
document sharing, and conferencing with Exchange Hosted Services, SharePoint Online, Exchange
Online, Office Live Meeting, and Office Communications Online. The Deskless Worker version,
which includes just messaging, Calendaring, and team portals, is aimed at task workers.
Google also has a number of different editions of its Apps suite, including one specifically for
government, one for non-profits, and another for the education market. The company’s enterprise
offer, Google Apps Premier Edition, includes messaging (e-mail, instant messaging, and calendar),
collaboration (document creation and sharing; Google Groups), message security (e-mail filtering
and message security), and message compliance (e-mail archiving, search and discovery), as well as
Web page creation and video hosting and distribution (Google Sites, Google Video).
Though the two suites are comparable with respect to messaging and collaboration applications,
Google has an edge on the word processing, spreadsheet, and presentation front with the inclusion
of Google Docs, which allows users to edit and share Web-based documents. Microsoft BPOS does
not now include Word, Excel, or PowerPoint, though this should change soon. Microsoft BPOS
does work with older versions of Microsoft Office such as Office 2003. It appears that Microsoft
is not eager to cannibalize sales of Office 2010; nor does it want to invite criticism in the event a
service interruption interferes with document editing.
Connectivity is the biggest issue with both packages, limiting the capabilities of each suite when
the user is offline. Gmail relies on Google Gears, which downloads a local cache of mail to the
user’s computer and automatically shifts to offline mode in the event of a service interruption.
Once the user is reconnects to the network, that cache is automatically synchronized with Google’s
server. Google Gears no longer works with Google Docs, though the company plans to introduce
a substitute at some point in the future. Microsoft BPOS has similarly limited offline capabilities,
with only Outlook mail available when the user is not connected to the Internet.

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 Advisory Report

Report: Delivery Model/Infrastructure

Microsoft BPOS’ high-profile service outages in late summer 2010 put an unwelcome spotlight
Google vs. Microsoft:
back on the reliability question, which remains one of the major obstacles to broad corporate
Showdown in the
adoption of cloud services. The incidents, which occurred in late August and early September, were
Cloud
apparently related to network infrastructure upgrades gone wrong. Google has also dealt with its
Business Network own fair share of service issues as well, casting a dim light over BPOS, Google Apps, and similar
and IT Services
public cloud offers.
Part of the challenge for businesses trying to assess whether Google Apps or Microsoft BPOS might
be a good fit for their organization is simply coming to terms with whether the underlying infra-
structure the companies use to deliver the suites is stable enough to provide business-class service.
At the moment, the jury is still out on that front.
Both rely either exclusively (in Google’s case) or almost exclusively (in Microsoft’s case, a few select
partners do host BPOS for Microsoft) on their own hosting facilities to deliver their respective ap-
plications. Neither is particularly forthcoming with information on where data is stored except for
public sector clients (see “Microsoft BPOS and Google Apps: Bringing the Cloud Down to Earth,”
March 26, 2010), or what architectural measures they take to ensure resilience beyond some fairly
general assurances about system redundancy and data replication. Microsoft does provide some
more specific information with respect to dual power feeds, multiple backup generators, battery
backup, and failover to a secondary data center in the event of data center connectivity problems.
With respect to data center security, both do boast a significant number of the requisite security
certifications. Both Microsoft BPOS and Google Apps are delivered from SAS 70 Type II-compli-
ant data centers. Google Apps is FISMA-certified. Microsoft BPOS data centers are also ISO
27001-certified.
Microsoft does offer an obvious alternative to enterprise customers concerned about the stabil-
ity of the cloud with its BPOS-D offer. Though it does not technically adhere to the National
Institutes of Standards and Technology (NIST) cloud definition, as it is delivered from a dedicated
infrastructure, the solution is similarly delivered using a low-cost, online model. In addition to the
SAS 70 Type II compliance certifications that Microsoft BPOS-S facilities claim, BPOS-D hosting
centers also meet FIPS 140-2 standards and trusted Internet connection (TIC) specifications.
Both offer extensive local language support and broad geographic availability. Google Apps is
available virtually anywhere in the world with message security support for 14 languages. Microsoft
currently delivers BPOS to clients in 40 countries, with various applications in the suite available
in as many as 45 local languages.
Administrative, Security and Support
While incidents such as the recent Microsoft BPOS outages raised red flags, what most enterprises
fear is the unknown of a cloud incident that could potentially be much worse. Specifically, com-
panies express concerns around legal and competitive issues which could arise if data is breached.
That concern alone is enough to keep some of the most risk-intolerant enterprises out of the cloud,
at least for now.
That said, both companies have instituted enough measures to reassure public and private sector
clients alike that they can deliver a stable and secure application suite. Google does confine data to
the U.S. for Google Apps for Government clients, and it reportedly extends the same courtesy to
other clients if the contract size is large enough.
Microsoft has set up a number of security controls, including via HTTPS. Microsoft includes
multiple layers of anti-spam and anti-virus filtering. BPOS includes FOSE protection, which scans
all e-mails, attachments, and documents to look for malicious code. Microsoft also assesses threat
models and conducts proactive security tests such a secure code reviews, pen testing, and continu-

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 Advisory Report

Report: ous security monitoring.

Google vs. Microsoft: Google, which acquired hosted mail security company Postini in 2007, offers similar inbound and
Showdown in the outbound filtering protections, though the company does not specify any additional steps it takes
Cloud with regard to data security. The company also recently took a big step forward on the access man-
agement front with the September 2010 introduction of two-factor authentication. Google Apps
Business Network
and IT Services customers can choose to require two forms of identification (e.g., a password or PIN plus a special
verification code sent to the user’s iPhone or another device). Google also announced support for
the OAuth token-based authorization scheme on Google Apps APIs.
Google Apps administrators actually have a fair degree of control over user access rights. Through
an online control panel, administrators can classify users into organizational units and add, remove,
or modify user accounts. Microsoft offers migration and co-existence tools that work with Active
Directory and Microsoft Exchange Server to synchronize user accounts, contacts, and groups.
With respect to compliance, both companies offer retention plans. Microsoft will retain customer
e-mail and instant messages for up to ten years; Google’s default is only 90 days, but that can be
extended on a custom basis.
On the SLA front, Microsoft’s standard availability guarantee – which was reportedly breached
during the recent outages, requiring the company to pay customers credits – is 99.9%. Google
offers the same SLA, with the promise of providing customers credits if they report a breach.
Both companies have migration service programs offered through third parties to help businesses
make a successful transition to the cloud. Of late, Google has been particularly assertive in this area
with migration programs for businesses moving from Microsoft Exchange and Lotus Notes.
Though both companies provide help desk services, neither is exactly making a name for itself for
stellar support levels. Instead, each company takes a similar tactic in relying on third-party partners
to deliver the level of support business customers expect. Microsoft, in particular, has come under
withering criticism for stepping over its long-time channel partners to take on a new role as service
provider, only to abandon customers when they really need support.
Go To Market/Sales Model
Partners play a critical role in both Google and Microsoft’s go-to-market strategies, filling in
resource gaps both have in appealing to customers across the size spectrum, as well as helping them
extend their reach into new markets. Microsoft has long relied on resellers, hosting providers, and
other partners to provide a channel to business customers which it would have otherwise been
unable to reach, and it has been successful in building out a strong BPOS channel. In Microsoft’s
case, the company’s aggressive incentive program, which recently doubled margin incentives from
12 to 24%, has thus far attracted 16,000 partners and counting.
Microsoft woos partners in part by promising significant net new customer signings. The company,
which claims to add as many as 100 new channel partners each week, tells resellers to expect up to
70% of the BPOS customers they pick up to be new.
Google and Microsoft share a determination to maintain account control, both preferring to hold
responsibility for hosting, delivering, and billing for their services, with partners playing a sales and
post-deployment service role. This position has resulted in significant resistance from prospective
partners that want to keep control over billing, including telecom providers which have played an
important role delivering hosted Exchange that could be replicated for BPOS. However, over time,
Microsoft has refined its partner strategy to allow key partners such as Orange Business Services,
Telstra, and Vodafone to host the service and bill for it.
Google has been less open-minded about the role telecom providers can play in delivering its
services, typically relying on third-party IT solution providers such as CSC to provide the integra-

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 Advisory Report

Report: tion and transition support to make through a complex migration. This said, the company has also
begun to experiment more with the roles its partners can play in expanding its presence in new
Google vs. Microsoft: sectors. Relationships such as its alliance with Tata Communications, where the provider plays a
Showdown in the primary role in the ordering and post-transition support process, could serve as a model Google
Cloud could replicate in other countries or regions.
Business Network
and IT Services Endgame
Though they are locked in a fierce battle for market supremacy, Google and Microsoft have risen to
the role of partners advancing the value proposition for SaaS-based productivity applications specif-
ically and cloud services in general. In a manner of speaking, each is an effective counterweight to
the other. Google arrived on the scene as the bold innovator, promising a full-featured office suite
for a fraction of the price of a conventional one. Microsoft has played the role of the modernizing
standard, refining its application suite while aggressively extending its channel.
The result is a market that, while still young, is on track to grow exponentially in the coming years.
For all the discussion about agility and access, SaaS’ most appealing quality may be cost. As long as
providers are able to continue to capitalize on the cost-efficiencies of virtualized infrastructures to
meet their business customers’ requirements, the cloud services segment will continue to thrive and
grow.
Yet, however prominent a role Google and Microsoft play in shaping this market, it is important
to note they may soon have company in outlining the landscape. Providers such as IBM, which
now claims (an often disputed) subscriber base of 18 million, and those utilizing VMware’s Zimbra
subsidiary and even Cisco WebEx Mail have a role to play too in defining business on-demand
workspace requirements and delivering on those elements.
Much is still unknown about how the market will ultimately shake out. What is clear is that the
space will likely be as dynamic as the services being delivered, with no single provider ruling the
roost.

 Recommended Actions

Recommended Vendor Actions

• Partners will continue to play a crucial role in driving broader business adoption of cloud-based
productivity services, particularly in emerging markets. Both Microsoft and Google need to
continue to invest in building out these relationships that will help the companies overcome the
trust factor.
• Google and Microsoft need to continue to position their Google Apps and BPOS suites as high-
value, low-cost enterprise alternatives to more traditional productivity applications. The companies
should tout both their customers’ successes and the success of partners in expanding their customer
lists.
• Microsoft is wise to maintain an open-minded approach to alliances, allowing trusted partners
such as Vodafone a greater degree of control in delivering and supporting BPOS. The company
should look at adding partnerships that mirror the model Microsoft is applying to relationships
with telecom providers, including alliances with hosting specialists with strong presences in emerg-
ing markets.
• Google needs to reconsider its go-it-alone delivery approach and evaluate whether adding new
telecom provider and hosting partners might help the company expand beyond its traditional
borders. Google can potentially use the Tata Communications relationship as a model for future
partnerships both inside and outside the Asia-Pacific region.

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 Advisory Report

Report: • While providers of on-demand productivity applications are making great advances in their
delivery models, they have not necessarily kept pace with fast-changing end user requirements.
Google vs. Microsoft: Providers should look at ways to improve on their existing feature sets and innovate their capabili-
Showdown in the ties to meet the needs of end users that are trying to produce more with fewer resources.
Cloud
Business Network Recommended User Actions
and IT Services
• Prospective cloud customers need to have a reasonably quick payback period to make the cloud
model work successfully for them. Organizations should look for prospective providers to offer
them quantifiable returns that go beyond the savings associated with the low per-seat models,
factoring in business improvements such as the ability to provide task workers with greater func-
tionality.
• Business customers looking for a cheaper alternative to traditional office productivity applica-
tions should consider a careful transition to the cloud services, starting with departments that may
not require the same rich functionality and resiliency associated with conventional products. For
example, businesses may look to migrate help desk workers that require only limited document
creation functionality to an online productivity suite.
• Some enterprise customers may be wise to wait it out as cloud providers work out the kinks in
their delivery models. Businesses will need to press Microsoft and Google for firm guarantees that
offer stronger reassurances and remunerations around security and performance.

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