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For Eric Schmidt, Google’s CEO, 2004 was a very good year. His firm led the search industry, the fastest-growing major sector in technology; it went public, raising $1.67 billion; its stock price soared; and its revenues more than doubled, to $3 billion. But as the search market ripens into something worthy of Microsoft’s attention, those familiar with the software business have been wondering whether Google, apparently triumphant, is in fact headed off the cliff.

I’ve seen it happen before. In September 1995, I had breakfast with Jim Barksdale, then CEO of Netscape Communications, at Il Fornaio in Palo Alto, CA, a restaurant popular with Silicon Valley dealmakers. Netscape had gone public a few months earlier, and Netscape Navigator dominated the browser market. Vermeer Technologies, the company that Randy Forgaard and I had founded 18 months earlier, had just announced the release of FrontPage, a Windows application that let people develop their own websites. Netscape and Microsoft were both preparing to develop competing products. Our choice was to stay independent and die or sell the company to one of them.

At breakfast, and repeatedly over the following months, I tried to persuade Barksdale to take Microsoft seriously. I argued that if it was to survive, Netscape needed to imitate Microsoft’s strategy: the creation and control of proprietary industry standards. Serenely, Barksdale explained that Netscape actually invited Microsoft to imitate its products, because they would never catch up. The Internet, he said, rewarded openness and nonproprietary standards. When I heard that, I realized that despite my reservations about the monopolist in Redmond, WA, I had little choice. Four months later, I sold my company to Microsoft for $130 million in Microsoft stock*. Four years later, Netscape was effectively dead, while Microsoft’s stock had quadrupled.

Google now faces choices as fundamental as those Netscape faced in 1995. Google, whose headquarters in Mountain View, CA – familiarly called the Googleplex – is only five kilometers from Netscape’s former home, needn’t perish as Netscape did, but it could. Despite everything Google has – the swelling revenues, the cash from its initial public offering, the 300 million users, the brand recognition, the superbly elegant engineering – its position is in fact quite fragile. Google’s site is still the best Web search service, and Gmail, its new Web-based e-mail service, Google Desktop, its desktop search tool, and Google Deskbar, its toolbar, are very cool. But that’s all they are. As yet, nothing prevents the world from switching (painlessly, instantly) to Microsoft search services and software, particularly if they are integrated with the Microsoft products that people already use.

In November 2004, Microsoft launched a beta, or test, version of a search engine designed to answer questions posed in everyday language and to serve results customized to users’ geographical locations. Microsoft has also created additional search software for its Internet Explorer browser and its Office productivity applications. That Microsoft is developing its own Web search engine and desktop search tools is significant in itself. But its competition with Google will have repercussions far beyond the existing search business – or even the software industry itself. Google and Microsoft will be fighting to control the organization, search, and retrieval of all digital information, on all types of digital devices. Collectively, these markets are much larger than the existing market for search services. Over the next several decades, in the view of search industry insiders I’ve spoken with, they could generate perhaps half a trillion dollars in cumulative revenue.

Microsoft is starting late but has extraordinary resources and powers of persistence – and it joined the browser wars late, too. In contrast, Google is youthful, adventurous, and innovative, and it does some things extremely well. The contest could end in a Cold War standoff, a decisive victory for either side, or even mutual destruction, if the competition frightens away customers and investors.

Peaceful coexistence, however, seems unlikely.


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