DEAL BY DEAL, GOOGLE INCHES AHEAD OF MICROSOFT

Mumbai, October 12, 2008
Business Standard

Vivek Kundra, recruited to Washington to overhaul city’s computer networks, plagued by cost overruns and viruses, treats his projects like stocks. The biggest “buy’’ on his trading floor is Google.

The 34-year-old city technology chief signed a contract worth almost $500,000 a year in June for all 38,000 municipal employees to use Google’s e-mail, spreadsheet and word-processing programmes, giving them an Internet-based alternative to Microsoft’s Office software, installed on computers. Accountants, teachers and firefighters use Google to set budgets, track truancy rates and map emergency routes.

Google is cracking Microsoft’s hold in the business-software market with skirmishes for orders like Kundra’s. Microsoft gets $19 billion in annual sales from applications such as Office and beat back a challenge for Procter & Gamble’s business this year. Google won clients such as Genentech, and D C provides a glimpse into how the Web company is gaining ground.

“If Google keeps getting big customers like the District of Columbia, that’s a lot of licenses Microsoft is going to lose,’’ said Jeffrey Lindsay, an analyst at Sanford C Bernstein & Co in New York. “This will be a huge signal to the business community that this product is being fairly rigorously vetted.’’

Kundra’s business pales next to the $16.6 billion in sales California-based Google brought in last year, almost entirely from ads that appear next to web-search results. Washington’s workforce, about the same size as insurance company Allstate Corp, can also still use Microsoft Office. Google is starting the software division from scratch, and it accounts for less than 3 percent of the revenue.

“Microsoft is entrenched,’’ said Scott Kessler, an equity analyst at Standard & Poor’s in New York. “Microsoft isn’t going to lose market share to Google anytime soon. It’s going to take some time and Google is fully aware of that.’’

Customers use a web browser to access Google Apps, which includes an online word processor, spreadsheets, presentation and e-mail software. The programs and users’ files are stored on Google’s servers, while most Microsoft programs are installed on individual computers on office desks.