Let me first eat some crow about arguing last year that Google and Microsoft were not going to go to war with each other because, except for the MSN crossover, they were in different businesses. They are in different businesses, and I still think it would be a disaster for Google to compete directly with Microsoft Office by ginning up a Google version of OpenOffice. But as the Writely word-processing acquisition and, now, Google Spreadsheet, make clear, Google wants the casual Microsoft Office user.
A few thoughts:
First, if Google’s long-term ambition is to bring Microsoft down, this is, in fact, the way to do it. Google Spreadsheet and Google Word, as described, resemble classic disruptive technologies: cheaper, more convenient, no-frills solutions aimed at products with fat product margins whose complexity and usefulness have overshot the mainstream. History suggests that, if such products take hold, Microsoft will have an extremely difficult time competing. The company will be driven to the high end of the market, and, ultimately, displaced—-following in the footsteps of most of the doomed incumbents in The Innovator’s Dilemma. Importantly, the problem will not be technology: Microsoft is obviously capable of releasing its own web-based spreadsheet. Rather, the problem will be in conflict with the existing business and profit model. All this, however, depends on Google Spreadsheet, et al, capturing the low-end user and then gradually moving up the value curve.
Second, although it is easy to extrapolate from “Google Spreadsheet” to “Google Takes Over the World!”, I do not think it is a given that the product will be a hit, especially initially. Few professional Excel users are going to use a stripped-down, web-based alternative, so the core Office market is safe for now. Furthermore, free or nearly free spreadsheets have been available for years, and they haven’t made so much as a dent in Microsoft’s monopoly. So it would be easy to overestimate Google Spreadsheet’s impact, especially initially.
Third, what is the business model? To seriously compete with Excel, and to avoid the fate that has befallen many of its “WOW!” product introductions, Google will ultimately have to dedicate a big team to the spreadsheet and word-processing services. At some point, that team will start costing real money, and no serious spreadsheet and word-processing user I know of is ever going to stop working on documents to click nearby ads (The “PPC ads in apps” concept is absurd). If the goal is simply a portal strategy–soak up more of a user’s computer time, and you’ll capture a greater percentage of their searches–then, fine. But the ROI on a free spreadsheet designed to capture more of a user’s time is way lower than that of a successful tweak to a search algorithm. Google’s overall ROI, therefore, should continue to fall.
Bottom line, I am still not convinced that office-productivity tools a la Word and Spreadsheet are Google’s best route to revenue diversification. They offer usage diversification, certainly, but, so far, no revenue diversification. I continue to worry that Google resembles Yahoo! in 1999–a mile wide and an inch deep–and until a few other products emerge as category killers, I will continue to worry about this. To be fair to Google, of course, it bears noting that the company developed its search service for years with no revenue model, and that story certainly had a happy ending.