Will Google address the Microsoft Challenge?

Ever since word came out that Microsoft would acquire LinkedIn, there has been speculation that Google may well respond with an acquisition of its own. What options does Google have, and will leveraging a key acquisition allow them to gain an edge over Microsoft? If so, in which space does it expect to compete with the creator of Windows? Let’s find out.

To first put things in perspective, the LinkedIn acquisition gives Microsoft the ability to connect with over 430 million business professionals from around the world. That alone puts Google at a huge disadvantage because it still doesn’t have a successful social media business to boast of. Plus (couldn’t help that, sorry), Google’s position in the business productivity space has been less than optimal considering that Office 365 has squarely trounced their own performance in less than two years.

So what can Google do now as a counter to Microsoft’s bold statement? Apparently, some sources believe that there are some very viable options open to Google – including possibly making a bid for Twitter, which is floundering in troubles of its own at the moment.

The only problem with that is: Twitter doesn’t necessarily address the enterprise segment the way LinkedIn does – and that’s the core of the problem. The fight between the two tech giants is more about enterprise dominance than anything else at this point, and an acquisition of Twitter isn’t going to solve the problem for Alphabet from an enterprise viewpoint. It will give them a solid social platform, but is that what they really need right now?

The ABCD of Alphabet’s Woes

That brings us to the real issue – where is Google falling behind, and how can they address the problem?

The first area is the business productivity market. Since Office 365 snatched the Number One spot from Salesforce.com, Microsoft has been on a roll, leaving Google for Apps languishing in fourth place after Box. With an estimated user base of 65 million paying users growing at the rate of 5-7% consistently quarter-over-quarter, the addition of LinkedIn to their portfolio means even stronger growth in the future. They’ve pretty much beaten Google hands down in the Software-as-a-Service space for now.

office 365 + google for work

Source: Okta

The second market is cloud infrastructure. With Azure Stack introduced earlier this year, Microsoft is already far ahead of Google in the enterprise segment. Granted, the entry of Diane Greene (VMware founder and Senior VP for Google’s cloud business) into the equation is a big boost for Google, but estimated revenues of $4.1 billion from cloud in 2016 against Microsoft’s current run rate of $10 billion says it all.

The third key area is, once again, social media. With LinkedIn now in the picture, Google needs something to counter Microsoft’s move, and Twitter is the only one big enough to give them a significant presence in that space. The problem, however, is what I’ve already mentioned about Twitter not giving them much traction in the enterprise segment. For Microsoft, LinkedIn means 430 million more potential users of Office 365. Twitter can’t make that happen for Google Apps.

The fourth arena is video streaming, and this brings in some fresh competition for the search engine giant – and it’s called Facebook. The social media king’s push on video is not something Google can afford to ignore because it will directly compete with Alphabet’s revenues from YouTube. It’s not a stretch to say that Facebook’s aggressive video initiatives will gradually begin eating into YouTube ad revenues over the next few years.

The Solution?

It’s clear that Google is getting hit on all sides at this point. Their productivity suite is no longer in the top three SaaS offerings, their cloud business is not strong enough to compete with Microsoft, Amazon or IBM, they don’t have a social presence to speak of and the wolves of video advertising are howling at their gates.

The answer is not going to be simple. The assumption that they need something like Slack, Box or even Dropbox to get a foothold once again in the productivity market is fair, but it’s not going to solve all of their current problems; neither is acquiring Twitter going to resolve their enterprise woes.

At this time, Alphabet needs to think long and hard about an acquisition strategy that will plug all these gaps effectively. Just buying one company is not the answer to their problems. They need a long-term plan to address each area of concern independently. And so far, that has not been forthcoming.