The Microsoft vs Google Endgame

The Microsoft vs Google Endgame

Posted by Umair Haque on May 19, 2008 10:26 AM

Today, something really interesting happened. Both Google and Microsoft are poised to make fairly dramatic strategic moves. But the moves they're poised to make are polar, extreme opposites: the contrast between them couldn't be sharper or starker.

So let's do exactly that: contrast them, to bring to life many of the issues we've been discussing.

According to an interesting rumour making the rounds: Microsoft is to acquire Yahoo's search business as well as Facebook, and lock both down, to better take on Google. And Google is letting third parties access one of its most valuable assets: it's ad network.

What's really going on here? Microsoft is poised to shift from open to closed. Google is already making exactly the opposite move: shifting from closed to open.

Here's what ex-Microsoftie Robert Scoble has to say about Microsoft's potential moves:

“…These two moves would change everything and totally explain why Facebook is working overtime to keep Google from importing anything.

Google is locked out of the Web that soon will be owned by Microsoft. We will never get an open Web back if these two deals happen.

This has created HUGE value for Microsoft and has handed Steve Ballmer an Internet strategy which brings Microsoft from last place to first in less than a week.”

So have the geeks in Redmond suddenly outsmarted everyone again - simply by going back to extend, embrace, and exterminate? Will value really be created, and power Microsoft back to the top?

Now, buying Yahoo's search business is just a grab for market share in online advertising. It's the second part of the rumour that's more interesting.

What happens if Microsoft buys Facebook and keeps it closed? Not much – because, as I’ve pointed out recently, there are tremendous structural pressures for openness.

Unfortunately for Steve Ballmer, this ain’t your grandpa’s "platform war”. It’s the reverse: only openness can maximize the value of network effects in this space, because there are no hard technological switching costs creating lock-in. For example, yesterday, it was massively costly to recode applications across operating systems, or for consumers to switch all their applications to a new platform – but that’s distinctly not true on the www: in fact, much of the point of the www is to vaporize those tired, obsolete scale economics and switching costs.

That’s why it’s a (massive) fallacy to argue that any value has been “created”. Value might be created when connected consumers can share and trade preference information or applications across social nets. But value is actually foregone if Microsoft acquires a closed Facebook, because opportunities for consumers, developers, and advertisers alike to meaningfully interact are destroyed. That’s what evil really means: coercing others into accepting value destruction.

If that doesn't make sense, read this killer post from Jeff Jarvis, expanding last week's discussion.

Unfortunately for them, and luckily for the rest of us, given these economics, Mark Zuckerberg and Steve Ballmer’s hare-brained scheme for world domination isn’t even serious evil - it’s less Scaramanga than it is Gargamel: born to lose, and destined to fail.

Contrast that with Google's shift to openness - can you see how it unlocks value for everyone? That's why Microsoft's move is a textbook example of how not to think strategically at the edge. It's yet another example why Google is in a class of its own - across the economy - when it comes to next-generation strategy. Google opening up its ad networks is strategic greatness at work.

What Microsoft really needs to do is take a lesson from Google's book, instead of staying trapped in its own fading past. Redmond must understand that yesterday's games of domination and control are obsolete - and that it has to rethink them. How could it do that?

By following many of the principles we've been discussing here - open beats closed, listening beats talking, good beats evil - Microsoft could learn how to play new kinds of games, that lead to new sources of advantage.

Or hell might freeze over: it's just not in Microsoft's command, control, coerce, and crush DNA to be able to make those radical decisions in the first place. Advantage, today, isn't in how you play the game, but what games you can play to begin with: it's in your DNA.

That's my take - but, as always here, your perspectives are probably richer than mine – so fire away in the comments and let's kickstart a discussion.