Google has locked horns with Microsoft in a high-stakes showdown to dominate what could be the next great mother lode of Internet-derived profits. Each is seeking to attract businesses to lease its hosted versions of essential communications and office programs, instead of maintaining these basic tools in house. It's an emerging form of digital office outsourcing — often referred to as cloud computing — one which Microsoft's outspoken CEO, Steve Ballmer, has vowed to own. "At Microsoft, for the cloud, we're all in," Ballmer told an auditorium full of University of Washington computer science students last spring. "It's just a great time to be all-in and really drive the next generation of technology advances." The software giant recently released a near-final test version of Office 365, a hybrid of its ubiquitous productivity software suite. Tuned for the Internet, Office 365 extends the slow-but-steady advances the company has been making since 2002 in delivering business programs over the Web, much as a utility delivers water or electricity. But now that's being challenged again by search-advertising company Google. At its recent Google I/O developer conference, Google made a move to steal some of Ballmer's thunder. There, Google unveiled Chromebooks, stripped-down computers optimized to run its hosted messaging, calendaring and collaboration tools. "Chromebooks is actually a huge leap forward for cloud computing," says Dave Girouard, Google's president of enterprise. "We're excited about putting more pieces of the puzzle together. Our aim is to be No.1 in cloud computing." Delivering software over the Internet is nothing new. Cloud computing occurs when an individual accesses services housed on a third-party server rather than a local PC. Consumers use cloud computing with free Web mail services and popular social-networking sites. The race among Amazon, Google and Apple to popularize cloud-based storage of your music collection is yet another example. And Salesforce.com and NetSuite have long supplied businesses with specialized customer relationship management and bookkeeping programs as hosted services. Yet, a confluence of developments has buoyed the big pushes by Microsoft and Google to extend cloud computing to basic workplace tools: e-mail, messaging, calendaring, word processing, spreadsheets, slide presentations and file sharing. Many companies that hunkered down during the recession are eager to refresh aging systems. Security has become a major pain, and everything is getting more complex as mobile-device use rises. And capital spending budgets are as tight as ever. A desire to become more efficient and reduce long-term costs was identified as an influential factor by 60% of information technology buyers from government agencies recently surveyed by CompTIA, a non-profit association for IT pros. For the tech companies wrestling for the future of office software, the stakes are high. Tech researcher Gartner forecasts that global spending on e-mail, collaboration and cloud-based applications will more than double to $20.7 billion by 2014, up from $9.8 billion this year.
Now cloud computing is getting a second look by often-conservative IT buyers because Internet connectivity has become ubiquitous, and data storage, dirt cheap, says Wes Miller, industry analyst at research firm Directions on Microsoft. "But the real reason people are flocking to it has to do with saving money, whether directly or indirectly." In many cases, the first basic tool companies look to outsource is e-mail. Shane Ochotny, tech architect at Tampa General Hospital, had four technicians working full time maintaining e-mail for 7,000 employees, including 1,000 physicians, spread through the hospital, a clinic and separate administrative offices. After testing several hosted e-mail services, including Google's Gmail, Ochotny chose to outsource e-mail, instant messaging and video conferencing to Microsoft; the software giant first began offering hosted e-mail in 2002, and it added other services in 2005 and 2008. That freed four technicians to create a customized program that provides instant e-mail access to new workers. Next up for the hospital's techs: developing a way to integrate video conferencing with instant messaging and voice over Internet. While some analysts worry that cloud outsourcing will ultimately cut employment, Tampa General's experience is likely more the norm. "Moving stuff that isn't central to the business into the cloud frees up IT people to work on systems that are central," says Rob Helm, analyst at Directions on Microsoft. The hospital is one of the early testers of Office 365, which features a lightweight version of Office that can be accessed by workers from any device with an Internet browser. Ochotny is prepping a test to see if Microsoft's approach to cloud computing — which continues to require traditional desktop PC software in combination with new hosted services — can be tweaked to let doctors and nurses instant message each other on their iPhones, as well as BlackBerry, Android and Windows Phone 7 smartphones. "Since we spend less time on maintenance, we can focus on innovation and better use of existing tools," says Ochotny. Microsoft's huge advantage over Google: "The sheer number of companies of literally every size for whom Office is the de facto productivity suite," says Charles King, principal analyst at Pund-IT. "After years of fumbling with its online strategy, Microsoft now has a viable plan with Office 365 to entice enterprises to dip a toe in."
Google's strategy is 100% cloud-based. Basic versions of Gmail and its office productivity suite, Google Apps, are free to consumers; businesses pay a monthly per-user fee for commercial versions. It all runs through a Web browser on servers owned and maintained by Google. This arrangement works especially well for businesses looking to extend Internet communications and file sharing to managers in far-flung operations or to workers on the factory floor or out in the field. Jason's Deli, a Beaumont, Texas-based restaurant chain, uses Google Docs to schedule meetings, share reports and plan events among managers working in 230 eateries, five corporate offices and two food distribution hubs. "Our use cases are wide and varied," says Kevin Verde, chief information officer of Jason's Deli. "We currently have 10,000 documents that our users are collaborating on using Google Docs." When Google approached Jason's Deli about testing Chromebooks, Verde says, he was skeptical that a device built solely to access a Web browser, and which could not store files nor run applications as a tablet or laptop PC could, would prove useful. But he distributed test models to sales reps who spend all day pitching catering services to schools, churches and local businesses. He was pleasantly surprised. Using Chromebooks, the reps could tap into spreadsheets and monitor successful sales campaigns in other regions. They could access customer relationship management programs hosted by Salesforce.com. Verde is now a Chromebook fan. "The administration side of the Chromebook is almost effortless, and that is a big deal for corporate IT," he says. But can Google make any meaningful encroachment on Microsoft's turf? Chromebook, while intriguing, is going head-to-head against tablets and netbooks, priced roughly the same. "The competitive landscape has been complicated by the emergence of tablets, particularly the iPad," analyst King says. "Though tablets essentially offer the same browser-centric experience Google is promoting, they also enhance the user experience via a wide variety of apps." Google remains undaunted. In an effort to entice Microsoft Office fans to give Google Docs a whirl, the search giant in March 2010 reportedly spent $25 million to acquire start-up DocVerse, launched by two former Microsoft engineers. DocVerse subsequently came out in February as Google Connect, a free browser plug-in that lets users access Microsoft Office files using Google Apps. "It really knocks down some of the last reasons people have for not wanting to use Google," says Girouard. "This makes it easier." Microsoft swiftly counterpunched., with officials lambasting Google Connect in the tech media for ruining the formatting of complicated Office docs. Lately, they've been spinning Connect as a concession that Office cannot be displaced. "Google was trying to shoehorn a consumer offering, Google Apps, into an enterprise value proposition, by telling customers, 'You don't need Office anymore,'" says Tim O'Brien, general manager of Microsoft's platform strategy. "That strategy failed. So now they've changed tack and are telling customers, 'We don't think Office is going anywhere soon, so let us show you how our product can work alongside of it.'" Maybe, but Microsoft can't get complacent, analysts say. Google claims more than 30 million "active users" of Google Apps at some 3million businesses, with more than 3,000 new sign-ups every day. That includes midsize companies, such as Virgin America and National Geographic, and a few large ones, such as Jaguar Land Rover, Motorola andInterContinental Hotels. "Google is a serious wannabe contender," says King. "The search giant has to be taken seriously if only because it has deep pockets and a strong will."
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