Google-Salesforce Deal Shows Google Not Insane, Microsoft Disruption Continues

One problem with the theory that Google is going to storm the Microsoft castle (MSFT) by disrupting the office-productivity-app business is that, to do so, Google (GOOG) would/will have to build a huge and expensive enterprise sales and service business.

Google may still end up having to do this--which will put further pressure on margins, and the stock price--but at least the company is not crazy enough to think it can do it immediately, by itself, all in one go (or, worse, that it doesn't need customer service). By integrating its app suite with Salesforce.com (CRM), Google makes its apps more useful to corporate customers. It can also leverage CRM's enterprise sales and support infrastructure, while benefitting from Salesforce's 1mm-customer installed base.

We continue to believe that the transition to "cloud computing" represents classic technology disruption and that Microsoft and other PC- and enterprise software companies will ultimately be in a challenging spot. This pressure won't develop overnight--for now, the Google App, Salesforce, NetSuite, contingent is small--but disruption always starts small.

Microsoft fans assure us that Microsoft is in great shape vis-a-vis the cloud transition, thanks to Ray Ozzie, but that it just wants to make sure it doesn't rush the products out, thus pissing off customers. We understand the desire not to annoy customers with not-ready-for-primetime products, but we also note that this problem--a high quality hurdle and incumbent customers--is just one of many challenges faced by companies in the process of being disrupted.

Internet users aren't adopting Google Apps because they're better than Microsoft Office. Google Apps are, by almost any objective measure, worse than Microsoft Office. Internet users are adopting them because they are:

• cheaper (or free)
  
• more convenient

These attributes will allow Google to grab the low end of the market, and, if this transition plays out as we expect, it will then move higher from there. Microsoft, meanwhile, will retreat higher to "power users" as it slowly gets disrupted from below.

TechCrunch has more on the specifics of the Google-Salesforce partnership...

See Also: Google, Amazon Lead Cloud Disruption, Microsoft Behind Eight Ball