Google Puts Microsoft on Its Heels

This column was originally published on RealMoney on Aug. 24 at 9:00 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.

With all the hullabaloo about Google's(GOOG Quote) huge growth and outsized market cap, the most common refrain that I hear in discussions of Google is that it's in trouble because Microsoft(MSFT Quote) is going after Google's business.

My answer to that is, has been and will continue to be: Flip it. Simple math shows that Google's the hunter here, and that Microsoft, not Google, is the company on the defensive.

To make the point, let's look at where Microsoft is going after Google and then where Google is going after Microsoft. The numbers show that Google has far more to win in these battles, and Microsoft is shouldering far greater risks.

Gates Grapples With Google

Microsoft has spent billions of dollars developing and buying search technology, which is Google's core business. And after all those billions of dollars spent on search technologies, Google's still the dominant search engine, holding 37% market share in July, according to Comscore Networks. MSN stands at about 15%. These market-share figures have been pretty static overall, amid the sector's outsized growth, so while it's not pulling away, it's clear Google's not backpedaling either.

How about the Internet ad business? Microsoft's spending hundreds of millions trying to get some meaningful momentum in that business. Meanwhile, RBC raised its estimates for Google's current quarter Tuesday -- partly because the Internet ad business is booming for the company. Again, this is a great growth business for all companies involved, but Google's the 800-lb gorilla. And while Microsoft's not exactly playing with a pawn-market fiddle in trying to get into second chair, they've not got Google's number here.

Let's review here. Google's dominant in two hugely profitable and very fast-growing businesses. This dominance comes in markets that are currently measured in the billions of dollars in total sales, which will quickly become double-digit billion-dollar markets and perhaps even into hundreds of billions of dollars in another decade or so. Microsoft, meanwhile, is doing its best to stay relevant in these markets and hoping (praying) for market-share wins.

Google Targets Goliath

So how about where Google's going after the Softee?

You might have noticed that Google rolled out a new application for download that they call the "SideBar." I downloaded it upon availability and noticed immediately that the company's software is now more fully embedded in my Internet browsers and in my Microsoft Outlook than it's ever been. Up until yesterday, anytime I mistyped a Web site's URL into my Microsoft Explorer window, I was sent to a Microsoft page telling me that the URL didn't work. Now when I mistype a URL, I get a Google page. There goes one of Microsoft's sources for driving traffic to its sites.