A Deal Pregnant With Possibility

A Google-Sun alliance could one day loosen Microsoft's hold on the PC industry

It was a chance for Microsoft's many rivals to dream. Google Inc. (GOOG ), Microsoft Corp.'s (MSFT ) current archenemy and perhaps its most dangerous to date, teamed up with a fierce rival of yesteryear, Sun Microsystems Inc. (SUNW ), on Oct. 4. Despite high expectations, the companies agreed to just a modest software-bundling deal, with Sun planning to offer some Google technology to its customers.

But what the announcement lacked in substance, it made up for in possibility. Google CEO Eric E. Schmidt and Sun CEO Scott G. McNealy vowed to promote each other's technologies, including Google's search, Sun's Java software for the desktop, and an open-source suite of office applications dubbed OpenOffice.org. The vague promise: to align more tightly the three biggest threats to Microsoft: Google, Java, and open-source software.

If reality approaches the grand proclamations, it could mean a more concerted effort to break Microsoft's lock on desktops. Some analysts expect Google to challenge many of Microsoft's strongest products, such as Office, its suite of word-processing and spreadsheet applications, with software that resides on the Net. "Google is recrafting itself from a search company to a broad-based services company," says Dwight B. Davis, software analyst at Summit Strategies Inc. A deeper alignment with Sun and OpenOffice could hasten that shift.

What exactly does this mean? No specifics have been unveiled, and its possible the partnership will amount to little. But one scenario has Google helping to promote and distribute OpenOffice and then tightly integrating it with its own search toolbar. Google's toolbar -- the technology that Sun will begin to distribute -- is a tiny software application users download to search the Web without going first to Google's home page. Some analysts speculate that Google could use the toolbar as a foundation to a Web-based programming world, giving users a way to sidestep expensive PC programs.

To become a real threat to Microsoft's desktop dominance, Google and its allies would have to offer much more than just an Office alternative. The more software apps that move online, instead of residing on Windows machines, the more Microsoft's position in the computing universe is threatened. That could surface in forms such as an online music service or an online product that lets users showcase a slideshow from a recent family vacation. Already, key business applications are hosted online, with Salesforce.com's customer-relationship management application leading the way.

Instead of buying software and installing it, users would turn to Google and others to rent programs delivered from anywhere on the Internet to any Web-connected device. "It's Competition 101," says former Sun exec Shahin Khan, now marketing chief at startup Azul Systems. "You want to commoditize what your competition is good at, and the Internet turns what Microsoft's good at -- distribution of software -- into a commodity."


That's where Sun's Java technology comes in. It's used by millions of developers to create programs. And those applications can run on almost any operating system, along with cell phones and other devices. "Both companies are dedicated to software as a service, to network as the computer," says McNealy.

Perhaps one day Java developers will write programs that will run on top of Google technology, such as the toolbar. It's this possibility that's a threat to Microsoft. After all, Microsoft's strength comes from that sort of ecosystem: As millions of developers create programs for Windows, Windows itself becomes ever more key.

The threat to Microsoft is hardly immediate, even if Google throws its remarkable brand strength behind an alternative. Windows and Office hold more than 90% of their respective markets in the U.S. "Microsoft's biggest competition is people holding on to older versions of its software," says Laura DiDio, research fellow at Yankee Group.

But if the partnership sparks a wave of applications delivered over the Web, it could loosen Microsoft's hold on PCs. The Oct. 4 deal may have lacked blueprints to make it happen. But it didn't fall short of offering Microsoft rivals that hope.

By Ben Elgin with Peter Burrows in San Mateo, Calif.

— With assistance by Peter Burrows

    Before it's here, it's on the Bloomberg Terminal.