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Microsoft and Google Cloud Computing StrategyEssay

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Corporate Strategy

Google and Microsoft's Greatest Strategic Challenge for Growth:

Gaining Enterprise Cloud Computing Customers:

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From the first days of personal computers and the then-nascent operating system MS-DOS to massive data centers capable of scaling across tens of thousands Office365 SaaS-based enterprise software users simultaneously, Microsoft has been able to stay strategically relevant in the 21st century. Google's ascent to dominance began with an algorithm capable of delivering search results at a level of accuracy, acuity and speed that is still unmatched by rivals today. Both of these companies and their rapid ascent to market dominance are predicated on very broad, rapid adoption of their respective applications, services and technologies.

Paradoxically the infrastructures both have built make them more vulnerable than ever to the emerging class of competitors who when categorized into Porter's Five Forces Model (Porter, 1980) are proving to be more effective at accelerating innovation and providing more compelling substitutes for the core products and services of these large corporations. For Microsoft, the threat of new entrants has been real since 2007 when the advent of open source software made it clear that the global software leader's lock on enterprise licenses would erode over time (Orr, 2007a). Since then, Microsoft has seen open source dominate their enterprise accounts and move into the mid-tier account base as well (Wonglimpiyarat, 2012). For purposes of this analysis, enterprise accounts are defined as those companies who are members of the Fortune 500.

Like Microsoft, Google has aspirations of selling into the enterprise, both with value-added services and also with search appliances (Brynko, 2012). Goggle's expertise in search engine algorithm development and the creation of customized taxonomies for unique organizational needs is a core part of their intellectual property (Arnold, 2014). This unique capability of building latent semantic indexing (LSI) queries of very large data sets is particularly valuable for large-scale enterprises who often have decades of data that is for the most part unused, delivering few if any valuable insights. Google's enterprise cloud computing strategy is focused on these global needs of large-scale organizations, with the intent of creating comprehensive contextual search systems that can be quickly delivered over their cloud computing architecture, powered by Google AppEngine, their collection of cloud services (Boye, Sejersen, 2009). Google's direction in the enterprise is predicated on making these specific services, cloud, and appliance strategies all synchronize to the common goal of providing a scalable, secure and highly contextual knowledge engine custom-built for global enterprises (Moore, 2006). Google AppEngine is the foundation for the company's enterprise cloud computing strategies while at Microsoft, they are relying on their Azure cloud computing operating systems and complex of data centers globally. Both companies compete with each other on a very regular basis to gain enterprise accounts who want to gain the cost, time-to-market and Return on Investment (ROI) advantages of cloud computing in their global enterprises (Han, 2011).

Analyzing the Enterprise Cloud Computing Market

The majority of Google and Microsoft's existing business models are predicated on dependency factors that preclude their profitable scalability into the enterprise. The large-scale adoption of cloud computing in enterprises is inevitable as the high costs of on premise systems and their relative maintenance costs force many enterprises to evaluate how they can drastically reduce operating costs (Boillat, Legner, 2013). Legacy on premise systems that often take entire teams of support staff to keep optimized are being replaced with cloud computing platforms that also deliver the benefits of quicker time-to-market of new applications throughout global enterprises, more cost-effective management of IT resources, and greater agility and flexibility in adding new features and options in a given application (Boillat, Legner, 2013). All of these factors are contributing to the rapid growth of enterprise cloud computing.

The International Data Group Enterprise Cloud Computing Study, 2014 provides insights into how lucrative the enterprise cloud computing market is and why it is so strategically important to both Google and Microsoft. Figure 1, Large Gap in Cloud Spending between Enterprise and SMB Organizations, provides a comparative analysis of how the average cloud computing investments by enterprise over 1,000 employees is $3.33M versus just $400K for companies with less than 1,000 employees.

Figure 1: Large Gap in Cloud Spending between Enterprise and SMB Organizations

Source: (Forbes, 2014)

As Figure 1 shows, the greatest aggregate gains in enterprise cloud computing spending are in companies with $10M or more in revenue. Google and Microsoft however have traditionally generated the majority of their revenues and profits from mid-tier and small & medium businesses (SMBs) (Microsoft Investor Relations, 2014), and in the case of Google, consumer-driven advertising and advanced ad targeting (Google Investor Relations, 2014). Google's dominance of the worldwide browser market with Chrome began with the initial release of that application (Fontana, 2008) and continues today (Google Investor Relations, 2014) which further shows their expertise in B2C markets. By having strong cloud-based architectures supporting their core businesses, both Google and Microsoft are well-positioned to accelerate their entry into the enterprise software market. To do this successfully, they each will have to concentrate on the enterprise cloud computing adoption and key buying criteria shown in Figure 2. The needs of consumers are significantly less complex than those of enterprises, which further makes the transition to an enterprise cloud computing provider challenging. The following figure prioritizes the key adoption and buying criteria. The IDG also found that marketing, sales and human resources are the three organizations most interested in cloud computing initiatives. These three departments are often the most frequent users of Google search engine technology (Google Investor Relations, 2014).

Figure 2: Enterprise Cloud Computing Buying Criteria

Source: (Forbes, 2014)

How Google and Microsoft Are Competing for the Enterprise Cloud Computing Market

Google and Microsoft have well-established consumer businesses, with the majority of Google revenue being generated from its advertising-related business models that are predominantly focused on the global consumer or (business-to-consumer) B2C markets (Google Investor Relations, 2014).Despite how financially successful Google continues to be with its core businesses, the company is still struggling on a global scale to successfully break into enterprise accounts. This is evidenced by the relative slow sales of their hardware servers that optimized contextual search for enterprise clients, and the relatively slow sales of their contextual search taxonomy services (Google Investor Relations, 2014). Despite these shortcomings in the enterprise market, Google has an extensive cloud platform and services of services collectively called Google AppEngine (Michel, 2009). What differentiates AppEngine from the many other cloud platforms in existence today including Amazon Web Services is the integration to knowledge management, contextual search, support for taxonomy creation and maintenance for enterprises, and most valuable of all, tight integration to the Google Android operating system that is dominating mobile devices today (Fenz, 2012).

With so much at stake in the enterprise cloud computing market, Google is aligning all of its core technologies, cloud services and most advanced research & development (R&D) in this area (Google Investor Relations, 2014). The result is a strong foundation for providing enterprises with an exceptional level of visibility across their entire value chains, which is a key success factor and buying criterion for Chief Information Officers (CIOs) (Perez, 2005). CIOs and senior management in Fortune 500 companies are also very focused on the issue of Bring Your Own Device (BYOD) or the enablement of mobile devices across the enterprise, which is an area Google excels at with its Android operating system and the pervasive adoption of its python development language (Arnold, 2010). Google's competitive advantage in positioning its cloud computing platform in the enterprise is based on the exceptional acuity and accuracy of value chain data and actionable insights delivered. For Google to continue enjoying the exceptional growth rates it has achieved in the past, succeeding in the enterprise with cloud computing is a given (Google Investor Relations, 2014). In the context of the Porter Five Forces Model, Google has to accelerate the variety and depth of support for enterprise-level applications on the Google AppEngine platform, which will mitigate the threat of substitute products (Porter, 1980) in their small but growing number of enterprise accounts. Google is entirely too dependent on their advertising revenue today and have seen Google Plus, their social network, not meet internal expectations for revenue and user adoption growth (Google Investor Relations, 2014). The bottom line for Google is that enterprise cloud computing is the most lucrative, viable growth strategy the company can undertake on a global scale today.

Microsoft's competitive advantages in the cloud computing arena center on managing the developer community to deliver new cloud applications on Azure, continual investments in scalability, security and modular data centers (Microsoft Investor Relations, 2014). Microsoft has successfully launched Office365 as a cloud-based applications yet is seeing the majority of sales in small and medium businesses (SMBs) and mid-tier services companies -- which don't have the scalability and security needs of Fortune 500-level businesses (Microsoft Investor Relations, 2014). For Microsoft the challenge is proving to enterprises that their depth of expertise in application development… [END OF PREVIEW]

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