Why Google attack is Microsoft’s not-so-secret secret sauce

It’s official – Microsoft is playing catch-up with Google, and putting its back into the task in the form of that massive increase in R&D spending in the area.

Microsoft chief executive Steve Ballmer yesterday spent an hour at the Sanford C Bernstein & Co Strategic Decisions Conference in New York seeking to reassure Wall Street that Microsoft’s surprise $2bn increase in R&D spending, revealed a month ago, is justified. It needs to catch up with Google.

“We’ve got to make this transition, which our industry is making, from software as a product to software as a service,” he said. “If you want to be a leading software company, you’ve got to be a leading software-as-a-service company.”

This transition is “not optional”, he said. “There was one big opportunity – advertising as a software business – where we weren’t first,” he added, with a nod to Google. “Being a little bit more generous on R&D, rather than a little less, I think is a smart thing.”

My colleague Kevin Murphy goes into some depth on Ballmer’s statements here. The only surprising thing about all this Google catch-up noise from Microsoft, in my view, is why it took them so long to truly realise the threat that on-demand, or hosted, or whatever else you want to call it, is a major threat to its business.

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