Google Steps Into Microsoft's Office

Google Apps, which lets companies offload their e-mail systems, is beefing up

Greg Brandeau is itching to dump the decade-old, homegrown e-mail system he manages at Pixar Animation Studios Inc. (DIS ). And the senior vice-president for technology at the Walt Disney Co. (DIS ) unit is sure about one thing: The replacement won't be Microsoft Corp.'s (MSFT ) Exchange and Outlook duo, whose e-mail, calendar, and other programs dominate corporate computing. Brandeau says it's difficult to manage the software because Pixar uses a variety of computers. His likely choice may surprise you: Google.

After months of dancing around with Web versions of e-mail, group calendars, and the like, Google Inc. (GOOG ) is finally about to take a big leap onto Microsoft's turf. Since last August, the search leader has offered a test version of an online office productivity software suite, called Google Apps for Your Domain, that lets companies offload e-mail systems to Google while keeping their own e-mail addresses. Soon, it's expected to add word-processing and spreadsheet services to the suite, which includes an online calendar, chat service, and Web page builder. In coming weeks, Google Apps will turn into a real business as Google begins charging corporations a subscription fee amounting to a few dollars per person per month. "We're dying to use something like this," says Brandeau. He's "on the cusp" of signing a contract with Google.


For now, Microsoft has little to fear. Many large corporations are wary of having an e-mail system run outside their own walls, where they can't be sure it's secure from hackers and spies. And even Google concedes its services don't have all the bells and whistles of Microsoft's products, such as centralized e-mail backups that help them comply with regulatory rules. "We're not looking to make it us vs. them," swears Dave Girouard, vice-president in charge of Google's enterprise group. "We're giving people choices." Still, his 300-person group's very existence—plus Microsoft's stated aim to extend its Office franchise to the Web—suggests that before long these two titans of tech will be battling over many of the same corporate customers.

Google's game is clearly different from Microsoft's. Its new thrust represents a dawning era in corporate computing: software delivered as a service over the Internet, so it's accessible anywhere there is a Web browser handy. This time consumers are leading the way as they flock to Web-based applications such as e-mail, chat, and phone services like eBay Inc.'s (EBAY ) Skype Technologies (EBAY ). Says Kyle McNabb, an analyst at market watcher Forrester Research Inc. (FORR ): "Employees may ask, Why can't I get the services that I have at home?'"

As traditional corporate software has grown complex and expensive to maintain, Web services are getting more capable and reliable every year. "For the first time, consumer-grade applications are good enough that they can be used by enterprises," says Douglas Merrill, a Google vice-president for engineering.

It's testament to Google's popularity that even though Google Apps is still in trial mode, hundreds of thousands of users at thousands of organizations are already using it. That includes a few big ones. Arizona State University plans to switch most of its 65,000 students to Gmail, Google Calendar, and a customized "start page" this month.

But enterprise software, even if it's delivered online, is an entirely different business from that lucrative little search box. Corporate users, accustomed to feature-rich applications from the likes of Microsoft and IBM (IBM ), are more demanding than consumers. Google got a taste last October when it switched over most of its own employees, who mainly had used Microsoft Outlook e-mail and Oracle Corp.'s (ORCL ) calendar program, to Gmail and Google Calendar. Some features on the old systems that Googlers considered crucial—such as a way to schedule all those company-paid massages—weren't available on the new system. In all, employees shot back more than 1,000 requests for new features in the first two weeks after the changeover.

More traditional companies, with a desire for more control, will be tougher to crack. "Google Apps may hit a wall with Exxon (XOM ) or Bank of America (BAC )," says Peter Rip, general partner with Crosslink Capital and an investor in corporate Web software firms.

Also, competitors aren't standing still—least of all Microsoft. It recently debuted Office Live, which offers Web-based e-mail, calendar, and other services in packages ranging from free to $39.95 a month for a single business. Some 250,000 small businesses use it, compared with tens of thousands using Google Apps, by Google's estimate. Chris Capossela, corporate vice-president for Office marketing, says Microsoft has years of experience catering to businesses, unlike Google and other consumer-oriented services.

Dozens of startups, some of which Google has already bought, also have piled into the nascent market for online office-productivity software. Zimbra Inc. boasts more than 6 million e-mail boxes at 1,300 paying customers. But even those outfits acknowledge that Google's entry changes the game. Zimbra Chief Executive Satish Dharmaraj says, in the measured tones of a man who one day might find himself sitting at a Googleplex negotiating table: "They have the brains, the chops, and the cash to pull it off."

By Robert D. Hof

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