While watching TV last weekend I saw a very entertaining commercial for Microsoft’s (MSFT) new bing.com search engine. The premise of the humorous ad is that we all suffer from "search engine overload" due to the lack of a focused search engine tool.
Now, the commercial didn’t mention rival search engine Google (GOOG) by name, but the implication that Google is directly responsible for this search engine overload is inescapable.
Of course, the struggle between Microsoft and Google is nothing new. The two software powerhouses have been fighting for control of the hearts, minds and pocketbooks of Internet users for a while now, and bing.com is just another salvo in that war.
And while the search engine battle is being taken to the commercial TV airwaves by Microsoft, the real combat is taking place on another front: the operating system or OS market.
Google recently announced its intention to take on Microsoft on its hallowed ground, the OS market. Google’s new Chrome, which started life as an Internet browser, is now also an OS. Basically, the Chrome OS is an open source operating system that will initially be targeted at so-called "netbooks," those mini-laptops that retail for less than $500.
Targeting the netbook market right now could prove to be fortuitous timing, as netbook purchases are the one bright spot in an otherwise murky consumer PC market.
In fact, according to recent data from the ChangeWave Alliance Research Network, there’s been no uptick in the number consumers planning to buy PCs or laptops in the next 90 days, but one-in-four consumers plan (24%) now say they’ll buy a netbook over the next 90 days. That’s 1 point higher than in April, and a full 10 points higher than the January measure.
Why Chrome Now? A Peak Through Windows 7
So, why is Google so anxious to get its Chrome OS on to the battlefield?
The main reason is because Microsoft is set to release Windows 7 to manufacturers for bundling into future versions of their hardware products.
Microsoft plans to have the new — and presumably vetted — Windows 7 available to the public before the end of the calendar year, just in time for the holiday season. Of course, given the undisputedly disappointing life of the Vista OS, you may wonder whether Windows 7 is going to be ready for primetime.
The ChangeWave Alliance research shows that Windows 7 is in better shape than Vista was when it debuted. As part of the latest Alliance corporate IT spending survey, 34% of Windows 7 beta testers said they were Very Satisfied with the product, while 58% said they were Somewhat Satisfied.
Those are good numbers. The initial reaction to Vista wasn’t nearly as positive. A February 2007 survey showed that only 10% of beta testers were Very Satisfied with the Vista OS.
One reason for the more enthusiastic reaction to Windows 7 lies in the introduction of a virtualized "XP Mode," which is essentially a way to run Windows XP within the Windows 7 environment. Importantly, nearly half of beta testers (49%) say this option makes their company more likely to upgrade to Windows 7 in the future.
A Gazelle Up Its Sleeve
But Microsoft is not relying on Windows 7 to fight the assault from Google’s Chrome OS.
Microsoft is working on Gazelle, its own version of an Internet browser-based OS. Gazelle will come complete with new architecture that’s constructed so it will provide exclusive control to manage the protection of all system resources.
The Gazelle project is still in the planning stages, according to Microsoft, but the project clearly shows that the company isn’t going to sit idly by while Google takes the lead in the browser wars.
The company is also not planning on falling behind in the Netbook segment either, as Gazelle would likely be its retort to the Chrome OS.
Share Price — The Real Battlefront
While the battle rages on in the technical area, so far in 2009, Google is the hands-down winner on the investing front.
Take look at the year-to-date chart of the Google (see below).
The stock has surged approximately 41% since Jan. 2.
Microsoft hasn’t done too badly either. As the chart below shows, Microsoft shares have moved 24% in 2009, a very healthy gain by any measure, yet decidedly inferior to the move in Google.
Now, I look at the action in these two stocks in two ways. First, I’d say that both of these companies are hitting their stride and that investors are smiling on the entire tech sector at large.
But can Google sustain this huge run and go even higher? Will Microsoft be able to build on its increases in 2009?
I think so. I think the competition between these two software giants is one of the reasons why investors are smiling on the sector. Competition in this industry — as in all industries — is healthy, and it not only leads to better products for consumers, but in many cases it leads to higher share prices for both major competitors.
From a technical perspective, you could say that because Google shares have enjoyed the higher, faster run, that they, therefore, would likely be the first to falter. While this is certainly possible, keep in mind that just because a stock has made a significant run higher, that doesn’t mean it won’t keep trending higher. Many a fortune has been made riding a stock up, up, up, and Google is definitely a fortune maker. That’s why I’d still be a buyer of Google.
Additionally, when it comes to fortune makers, there is perhaps no better example than Microsoft shares.Over the last 20-plus years, countless investors have amassed a great deal of wealth from the company’s massive share price success story. And though the past five-plus years have been tough on Microsoft shareholders, I don’t think you can count Microsoft out.
In short, if you want to take advantage of the battle between Microsoft and Google, I’d nibble on both stocks until either A) a clear winner in the tech wars emerges, or B) the well runs dry in both stocks, forcing you to seek irrigation elsewhere?
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