Google Puts Microsoft on Its Heels

And then there's the scratch pad function in Google SideBar. I used to keep notes, such as the coding for placing a hyperlink into the text in RealMoney.com's Columnist Conversation, in my Outlook notes. So I'd have to bounce between programs in order to grab a note. Now it's right there for me. Point being, SideBar is incredibly functional in its first beta iteration.

What's to stop Google from opening up the functionality of the SideBar (or making available a similar type download or even Web-based application) that allows users to type up documents, thereby taking some small market share from Microsoft's dominant Office program, which has more than 90% market share.

Google's also updated its desktop search program, is rolling out an instant messenger application and it's going to continue to move into Microsoft's 97% market share in that domain known as your desktop.

So Microsoft dominates slow-growth, mature, cyclical businesses, where success is driven much more by market share than by secular growth. These are businesses in huge markets that are already measured in the tens of billions of dollars in sales per year. Google's going to take market share in Microsoft's slow-growth businesses, there's no doubt about that, while it enjoys the secular growth of the Internet businesses it dominates.

Now recall that old Google dominates businesses that are growing quickly from a much lower level and Microsoft has to spend heavily to make headway in Google's secular-growth businesses, while fending off market-share losses in its cyclical growth operations.

I sure wouldn't bet against Microsoft, and in fact, I think it's a very strong buy right here, based on its low valuation and the coming roll out of Xbox360 and Vista operating systems. But let's be clear about it -- it's not Google that is on the defensive. It's Microsoft.

Why don't I include Yahoo!(YHOO Quote), which is also targeting Google? Yahoo! benefits just as much as Google from the secular-growth areas. It's that simple.

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