MS vs Google: the cyberwar goes on

There are reasons to worry for the richest man in the world, as he locks horns with a couple of young upstarts stealing not only his workers but his glory as well.

This is the story behind the tussle going on in US courts between Microsoft Corp. and Google Inc. It pits Microsoft chairman Bill Gates against the new darlings of the tech world, Google founders Sergey Brin and Larry Page, who are posing a challenge to the world's most powerful software company with their aggressive moves.

Nominally, the case revolves around the poaching by Google of former Microsoft executive Kai-Fu Lee to lead its Chinese operations and a new research and development centre in Beijing.

But the case is also a vivid illustration of the increasing threat Google poses to Microsoft's domination of personal computing.

To many the battle recalls the titanic struggle almost a decade ago when Microsoft correctly identified the dominant browser maker at the time, Netscape Inc., as a major threat and attempted to drive it out of the browser market.

Similarly Google's advance into every corner of the online world represents a challenge to the software colossus. Lee is just one of the hundreds of Microsofties who have shifted to Google over the past two years, which has even had the nerve to set up a regional office just down the road from Microsoft's headquarters.

Google's domination of Internet searching has pushed Microsoft's search tools way down the preference list of most surfers, while its feature-rich e-mail programme gmail has made Microsoft's Hotmail look antiquated.

Most serious is Google's increasing interest in offering users software like the photo suite Picassa or its Google Earth programme, which allow users to zoom over the planet from the comfort of their desktops.

How soon, wonders Fortune writer Fred Vogelstein, before Google takes aim at Microsoft's cash cow - its Office productivity suite - by offering an easy to use word processor, calendar or spreadsheet over the Internet.

Google has also been a prime backer of the open source browser Firefox that is eating away at the dominance of Microsoft's Internet Explorer web browser. Others wonder whether a Google operating system based on Linux is too far away.

Vogelstein quotes Gates as worrying about a Google-centric future. "If all there was search you really shouldn't care so much about it," Gates said. "It's because they are a software company. They are more like us than anyone else we have ever competed with."

In its court case against Google, Microsoft claims that the hiring of Lee violates a non-compete agreement he signed in 2000 and would also give Google inside knowledge of many of Microsoft's trade secrets, including details of high-level strategy meetings in which Microsoft bosses discussed how to beat Google.

But Google has a different take on the case. In its counter suit filed Wednesday the company claimed that the Microsoft case was a "charade" designed to intimidate anyone else from making the switch. They even quoted a conversation Lee allegedly had last month with Gates.

"Kai-Fu, (CEO) Steve (Ballmer) is definitely going to sue you and Google over this," Gates reportedly said. "He has been looking for something like this, someone at a VP level to go to Google. We need to do this to stop Google."

On Thursday Ballmer gave his annual briefing to analysts in which he outlined the company's plans. He made no direct reference to the tussle with Google, but other comments he made indicated how the two companies are on a path to direct confrontation.

Microsoft was pressing ahead with plans for a new Windows operating system and a new productivity suite, he confirmed. But these are mature markets where Microsoft can no longer expect the exponential growth that made it the world's most valuable company.
Instead the company plans to deepen its investment in Internet search, music and video games - all areas of huge growth where it faces major competition from the likes of Google, iPod maker Apple Computer and PlayStation maker Sony.

"We think we're going to be major players in every significant area: search, music, and games. We think our future is bigger, bolder and brighter than many of the folks watching us."