Google, Microsoft and mechanized warfare

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Because marketing strategists can learn a lot from the art of warfare, all of my columns this month will focus on lessons from military history that are directly applicable to current battles in the search marketing and targeted media spaces.

This week, let's look at a little-known incident from World War II that illuminates the nature of the conflict between Google and Microsoft for dominance of the search ecosystem.

On the icy morning of December 16, 1944, Major General Hasso Von Manteuffel, commander of the 5th Panzer Army, was racing west through the Ardennes forest toward Bastogne, a key road junction. Von Mantueffel, a specialist in tank warfare whose brilliant successes in North Africa and the Russian Front had earned him the coveted Knight's Cross of the Iron Cross with Golden Oak Leaves, Swords, and Diamonds, was elated by the early success of his assault. Thousands of troops from two regiments of the US 106th Division had been captured and Mantueffel had secured a sizeable bounty of equipment, ammunition, and most importantly gasoline, which his Panzers needed to continue their forward assault.

While pausing briefly while his tank was refueled, Von Manteuffel looked down and saw several of his troops enjoying a treat by the side of the road.

"What are you soldiers eating?"

"Pie, Herr Major General," a lieutenant answered, "from the captured Americans."

"Let me see that," said Von Mantueffel, reaching down to take the pie, which was carefully packaged in a cardboard box labeled "Boston Cream." After examining both the pie and its container (which read "Made in Boston, U.S.A."), he handed it back to his troops.

Within minutes, Von Manteuffel's panzer force was refueled and under way, but the Major General's early elation had vanished, because of that Boston Cream pie. "Even with the world in a state of total war," Von Manteuffel mused to himself, "the Americans have enough gasoline to send Boston Cream pies to their troops more than 3,000 miles away. And here the Wehrmacht, the greatest fighting machine in history, is completely reliant on gasoline recovered from the enemy!"

At that moment, Von Mantueffel realized that the war was lost. One could have the best-trained men, the best fighting machines, and the best battle plan in the world, but these were all useless without gasoline.

The same principles apply to today's search engine environment. Just because a given company such as Google has "broken through" and is racing ahead does not mean that its assault will not be constrained by long-term resource issues. In Google's case, the "gasoline" supply necessary for continued forward movement comes from two main sources: in Google's continued ability to replenish its cash through dominance of search advertising, and in the continuing willingness of investors to support its stock price. (One can argue that these two sources are inextricably intertwined: if Google fails to show growth in its search-based advertising, its stock price will drop, and if its stock price drops, this will constrain its ability to maintain the investment levels to ensure continued search monetization levels.)

Equally important, Google's forward movement is remarkably dependent on a lack of determined opposition from the institutions its assault has challenged. For example, Microsoft's traditional means of aggressively defending itself through applications bundling and operating systems integration were declared illegal by the Federal Government, effectively tying its hands from responding to Google's assault. Google has also benefited from the current administration's general anti-regulatory stance, which has failed to take anti-competitive claims against it seriously enough to mount a defense. The lack of determined, organized opposition by public and non-public entities to Google's assault is a factor more significant than superior tactical skill on Google's part; without such a lack of opposition, Google's remarkably deep penetrations would have been impossible.

Beyond the tactical issues underlying Google's successful advances, history consistently tells us that even the greatest tactical victories are no guarantee of long-term success. All wars are attritional in the sense that the side which can best bear losses of men, material, and national treasure will ultimately prevail. While Google's $157 billion market cap might cause some to believe that it is unassailable, 99 percent of its revenues come from search advertising alone, and its profit margins for the last quarter were just 28 percent. Microsoft, whose market cap is $270 billion, may be lagging in search but its profit margins, at 74 percent, were almost three times higher than Google's. Microsoft also has a diversified revenue stream that makes it much less vulnerable to disruption than Google's. And while Google has been an operational company for fewer than 10 years, Microsoft has been fighting battles continuously and trenchantly for more than 25 years for those objectives it deems most strategically important.

The battle between Google and Microsoft is in its earliest stages, and it is far too soon to predict who the victor will be. But the outcome will not be decided simply by which company possesses the superior resources, but at the speed at which it can maneuver to take advantage of new market opportunities and exploit vulnerabilities of its opponent. As Major General Von Mantueffel observed, "it is a matter of life or death for the tank to avoid the deadly effect of enemy fire by being able to move quickly from one fire-position to another. Maneuverability develops into a 'weapon' and often ranks equal to firepower and armor-protection."

Maneuverability, adaptability, and the ability to execute audaciously brilliant assaults are values as applicable to businesses as they are to armies on the battlefield. The battle between Google and Microsoft has just begun, but there is no question that the company that best exemplifies these values over time will ultimately prevail.

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