Carmi Levy: Could Google take Microsoft's place, in every respect?

AR Communications Senior Vice President Carmi Levy

CARMI LEVY, Senior Vice President for Strategic Consulting, AR Communications: The danger here for anyone who has any hope of competing against Google is that, the longer this process drags on, and the uglier it gets, the greater the window for Google to stretch its lead and separate itself from all these players. Which, shockingly, looks very much like Microsoft looked in the mid-'80s, where the market truly was dominated by a monopolistic player, or at least a monopolistically-minded player. The market itself runs an increased risk of one player running away with all the spoils, and ultimately, that's bad for consumers -- not to cast dispersions on Google by any means, but it's never good for an open market when one player dominates to the degree that Google could dominate when this process is done.

SCOTT FULTON, BetaNews: And that really was the Microsoft model of success in the '80s and '90s, let everybody else fall over themselves.

CARMI LEVY: That's right, and then come in, pick up the pieces, scoop up whatever market share you can, and then find another market to dominate in a similar manner. [Microsoft] moved from operating systems to productivity software to networks, then they moved online. Unfortunately, when they moved online, they came up against competitors that they had never previously come up against, so that's been their Achilles' heel for the better part of the past decade. But the company's still very profitable and it's still sitting on a fairly sizable cash flow, so it's hard to say that its strategy has been a complete failure.

SCOTT FULTON: I remember a day when WordPerfect had a 93% market share, when Harvard Presentation Graphics [was the requirement for business meetings]. In those situations, it wasn't that Microsoft particularly had the better product that eventually absorbed everybody, though I happen to think Microsoft Word was a good product. But it was really a case of sitting back and watching everybody else eat each other alive. And Google may have had a very good teacher.

CARMI LEVY: Absolutely. If you look at Google's meteoric rise to dominance, it parallels, in its own way and in many ways, the rise to dominance of Microsoft. And a lot of those lessons [included the one where] very rarely, for Google, the first to market for Google was not the first successful search engine. But it introduced differential technology and acquired and integrated differential technologies to separate its offerings out from others. Integration of services was the key to Google's success; it wasn't enough to simply be the best search technology of the time, but it was to figure out how to turn that into money.

Microsoft did the same thing: It wasn't good enough to be the best word processor, but [it tried an integration approach]: How do you integrate that into workflow so you're not selling word processors but you're selling productivity solutions? Both of these companies, at various points in their history, have thought outside the box and come up with differentially better ways of competing against the incumbent dominant players, and in doing so, have then become dominant themselves. And I think we paint ourselves naive if we believe that out there, there isn't some company that is capable of doing the same thing to Google, because in fact, there are...Certainly Microsoft is hoping that, through all these machinations, it is that one company. History will disagree, because usually, it's not a formerly dominant player that comes back and succeeds again; it's usually a smaller player that comes out of nowhere.

SCOTT FULTON: What is Google's real strength besides its brand recognition? Its search algorithm is pretty basic, all things considered; its search service is, by its own design, plain vanilla.

CARMI LEVY: But that also borrows from Microsoft's playbook because Microsoft's technology, at any point in their history, has never led the market either. Microsoft has never brought breakthrough technology to market, and has never been the bleeding edge market leader. Its technologies have always been "good enough," and as long as you reach that threshold where the market -- both of users and of investors -- believes that the technology is "good enough" for the majority, the middle of the Bell curve of all end users, then that's enough...It'll take something that's an order of magnitude better in order to knock them off their pedestal, and there's no sign of that happening in the market today.

SCOTT FULTON: Well, there are certain departments still, where if you were to restrict your evaluation to just those departments, Yahoo has a little bit of a lead. One of them is as a mobile portal.

CARMI LEVY: Yea, mobile portal, graphic advertising. They just released a new platform that's going to extend that positioning and their lead in graphic advertising. Google is nowhere near them in terms of graphic ads at all, and Google certainly doesn't have the depth of partnership in graphic ad placement that Yahoo has. So there's no question, certain elements of Yahoo's business lead those of Google's [and] of Microsoft's, and there are certain shining stars within the overall range of Yahoo products and services, but unfortunately for shareholders, there aren't enough of them.

SCOTT FULTON: And there are areas even where you would think Google is dominant, specific areas -- China, for instance -- where Yahoo still holds a bit of a lead, even though it's like Hillary Clinton's lead in Pennsylvania right now -- kind of a lead as a search portal in China. There are departments where you can look and see that Yahoo can be competitive. But is the truth in the modern age the same as it was in the 1990s for Microsoft: In order to compete with Google, you have to fight on all fronts and all of Google's fronts simultaneously, and win a majority of those battles, in order to get a leg up in the public perception?

CARMI LEVY: Well, to use a Star Trek analogy, Google is today's Borg. Starfleet's initial strategy of fighting the Borg on all fronts led nowhere, simply because you cannot fight an all-powerful being on all fronts with you are faced with a significant deficit of resources, and expect to win, let alone survive. So really the key is not to outflank them on all fronts, but to find specific niches that are below their radar that you can then infiltrate and carve out a niche of your own, which can then serve as a beachhead for future growth and future partnership.

This is how Microsoft grew to be the leviathan that it is today, because it identified niches underneath IBM's mainframe and mini dominance, and it carved out a beachhead in the desktop PC space, and gradually grew that until that became market dominance. Google accomplished the same thing in the search engine area against Yahoo; Yahoo's original success was not as a search engine, it was as a portal. Google...came in under the radar. Forget competing against Yahoo as a portal, but simply stick to your core strength and build that strength as a search engine, and render the portal irrelevant. Of course, by the time Google was finished, that was exactly what it had done: It had literally gutted the philosophy of portals from the inside out.

So at some point, some company is going to do the same thing to Google: It's going to render its dominance in search and Web services moot by literally building a niche, and carving that out from the inside until the market moves on to that next big thing, and then Google will not be able to compete on that front.

SCOTT FULTON: And what do you want to bet that we haven't heard the name of the company or the person who comes up with the formula that does what you just said?

CARMI LEVY: I fully believe it. In fact, if the company is out there, it's completely invisible, but I'd be willing to bet the company hasn't even been founded, that the individual who will be leading that firm likely isn't even out of school at this point.

SCOTT FULTON: Or may never be out of school, as the case may be.