One of the most fascinating Google Developments in the last few months (from a pure strategy perspective) has been its all-out assault on Microsoft and Amazon.
Google’s fight against Microsoft is very well documented -
- Google has announced Chrome OS to take on Windows.
- Google has also beefed up its Google Apps offering, and focused more on paid Google Apps.
- Lots of other developments like Google Wave.
Amazon has also felt Google’s wrath -
- The Google Book Settlement hangs like the Sword of Damocles over Amazon’s publishing ambitions.
- Google has further raised the stakes by announcing it’ll sell ebooks and has sided with Publishers on pricing.
- Google has helped first Sony, and now B&N by providing 500K free books.
The question this brings up is – Is Google taking on too much?
Photo courtesy Colin McMillen.
Google might have picked on the wrong two giants
1. Revenue Strength of Amazon and Microsoft.
First let’s look at Microsoft’s businesses (in particular Q3 of fiscal year 2009) -
- Client (Windows) – $3.4 billion revenue. $2.5 billion operating income.
- Servers and Tools – $3.47 billion revenue. $1.35 billion operating income.
- Online Services Business – $721 million revenue. $575 million loss.
- Microsoft Business Division – $4.5 billion revenue. $2.87 billion operating income.
- Entertainment and Services – $1.75 billion revenue. $31 million loss. Worth noting -
We are just beginning to enter the profitable phase of the current generation of gaming consoles.
Microsoft is investing heavily – to the tune of $1.75 billion a quarter.
In a few years Microsoft will reap the benefits and will reap them for at least 4-5 years.
After factoring in costs, etc. the net profits for Microsoft in Q3, 2009 were $4.436 billion (on total revenues of nearly $14 billion).
This includes all the losses it is taking on ventures like Bing and Zune.
Compare this with Google’s Q2, 2009 - $5.52 billion revenue, and $1.6 billion profits.
Next, let’s look at Amazon’s businesses (this is Q1, 2009) -
- Media (Books, CDs, DVDs, etc.) – $2.7 billion revenue.
- Electronics etc. – $2 billion revenue.
- Profits were $177 million. This is somewhat misleading for reasons like Kindle purchases being spread across 8 quarters.
That’s total revenue of nearly $5 billion.
2. Diversification Strength of Amazon and Microsoft
All of Google’s money (or to be more particular, 97% of it) comes from advertising.
In stark contrast both Microsoft and Amazon sell things.
Microsoft has the following businesses all generating $1 billion or more in revenue per year (courtey this great post from Many Niches) -
- Windows OS
- Windows Server OS
- SQL Server
- Xbox (and this is going to grow a lot)
- Xbox Live (it has 20 million+ users)
- One or both of Project and MS Dynamics.
In all there are supposed to be somewhere between 9 (my estimate) and 14 (Robert Scoble’s claim) Microsoft Billion Dollar Businesses.
Amazon is on its way to becoming a diversified super-power too -
- Media (Physical Media) – Books, CDs, DVDs.
- Kindle (very likely).
- Cloud Computing (very likely as Amazon is the current leader).
- New initiatives like Amazon Wireless Store and Amazon Fresh might grow into big businesses.
- Sites that could combine into a meaningful presence – IMDB.com, DrugStore.com (it has $300 million+ revenue per year, Amazon owns 46%), Endless.com (shoes), ShopBop.com(clothes), Fabric.com, Pets.com.
- MP3s and Digital downloads (excluding Kindle – might happen).
- Print On Demand and other Non-Kindle Publishing (might happen). The recent University of Michigan tie-up is a sign of things to come.
We could make a decent argument that -
- At least 4 of them (books, dvds, music, electronics) already are billion dollar businesses.
- The Kindle, Clothes and Shoes, Book Publishing, and Cloud Computing are 4 additional Amazon businesses that will likely be billion dollar businesses within 2 years.
Closing Thoughts – Google’s Revenue Challenge
Google is in an interesting position -
- There is no credible threat to it in Search (regardless of what you might think of Bing, Facebook and Twitter).
- This makes it incredibly powerful and incredibly profitable.
- Its complete and utter reliance on search and advertising make it necessary for Google to preserve this business.
- It also makes Google super driven to find a second viable source of revenue.
This dual need to protect its turf and find additional revenue streams has led Google into -
- Its Book Wars with Amazon.
- Its OS and Enterprise Wars with Microsoft.
- With Android and Chrome OS, it is inadvertently also opening up a front with Apple and the Wireless and Cellphone companies.
Suddenly you have a company that is taking on 2, and arguably 3, of the biggest, most dangerous companies in the world – at the exact same time.
As Amazon and the Kindle fight against Google’s ‘Everything for Free’/'Do No Evil’ (seemingly flawless) strategy it’s worth nothing that they are not alone.