Novice Investing - Microsoft Alert: Google Is Coming

Date: Monday 01st 2008f December 2008 04:36:08 PM

Microsoft Alert: Google Is Coming - 02/09/2006

By: Hari Wibowo

The battle of the titans is here. This time, it is Google Inc. (GOOG) on the offensive. Who was the target? It is the formidable beast Microsoft Corp. (MSFT). Google is not attacking the company's MSN division this time. They already succeed in doing so by being the king of search. What is Google interested in? They are interested in Microsoft's lunch box, which is the operating system division.

How dare Google do that? Didn't they know that Microsoft controls 90% of the world's operating system through its window flagship? How do they plan to do it anyway? Many has risen and failed to break Microsoft's stronghold. But, Google is no ordinary folk. It has, in fact, beaten Microsoft in the search engine war.

Well, how does Google plan to enter the desktop market? Enter Dell Inc., one of the biggest PC producer in the world. Rumor has it that Dell is contemplating in bundling Google's software on its PC. Your next question would be why is Dell willing to do such a thing? Putting a new unproven software into your main product is a risky move, isn't it? Money is the reason why. The report further elaborates that Google will be paying as much as $ 1 Billion to put its software product to every Dell's computer for a three-year period.

There might be more than one software from Google that you will see from your next Dell computer. However, one software that is certain to be included is Google Toolbar. Other than that, what could Google include in its deal with Dell? The Dell PC certainly still run on Microsoft's Windows. Perhaps, Google will bundle its own version of Microsoft Office. A look at Google Lab does not indicate that it is building similar products in the near future. Google has an agreement with Sun Microsystems Inc. (SUNW), however, to distribute its Star Office products through the internet.

For the sake of clarity, let's just assume that Google will only include its Google Toolbar on every Dell computer for the next three years. That is about 100 million Dell computers getting a Google Toolbar. At a cost of $ 1

Billion, the cost per computer is $ 10. Is it worth it? I am not so sure. It is like paying $ 10 for someone to visit your website or use your products (Google Toolbar in this case). That is a pretty expensive pay per-click advertisement for Google. Sure, we all know that Microsoft has an 85% gross margin and an enviable position in the desktop operating system market. But if Google includes only its toolbar in the upcoming Dell computers, $ 10 per PC is a pretty steep price to pay.

A strong fortress is better attacked from directions other than the front door. To penetrate Microsoft's operating system, Google can use other alternatives such as providing a $ 200 PC. Google can at least break even using this alternative, instead of losing $ 10 per PC sold. Collaborating with Sun Microsystems in providing free Star Office product was a great way too. Continuing to support Firefox browser too can eventually help Google to overtake the operating system market if that is what it wants. That will cost less than $ 1 Billion. In return, Google can then use the proceed to buy a truck load of advertisement to enhance its brand.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Dell Inc. (DELL) or any other securities.

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