Google Rewires Washington in Challenge to Microsoft (Update2)
By Molly Peterson
Oct. 10 (Bloomberg) -- Vivek Kundra, recruited to Washington to overhaul city computer networks plagued by cost overruns and viruses, treats his projects like stocks. The biggest ``buy'' on his trading floor is Google Inc.
The 34-year-old city technology chief signed a contract worth almost $500,000 a year in June for all 38,000 municipal employees to use Google's e-mail, spreadsheet and word- processing programs, giving them an Internet-based alternative to Microsoft Corp.'s Office software, installed on computers. Accountants, teachers and firefighters use Google to set budgets, track truancy rates and map emergency routes.
Google is cracking Microsoft's hold in the business- software market with skirmishes for orders like Kundra's. Microsoft gets $19 billion in annual sales from applications such as Office and beat back a challenge for Procter & Gamble Co.'s business this year. Google won clients such as Genentech Inc., and D.C. provides a glimpse into how the Web company is gaining ground.
``If Google keeps getting big customers like the District of Columbia, that's a lot of licenses Microsoft is going to lose,'' said Jeffrey Lindsay, an analyst at Sanford C. Bernstein & Co. in New York. ``This will be a huge signal to the business community that this product is being fairly rigorously vetted.''
Kundra's business pales next to the $16.6 billion in sales Mountain View, California-based Google brought in last year, almost entirely from ads that appear next to Web-search results. Washington's workforce, about the same size as insurance company Allstate Corp., can also still use Microsoft Office. Google is starting the software division from scratch, and it accounts for less than 3 percent of revenue.
Entrenched Competitor
``Microsoft is entrenched,'' said Scott Kessler, an equity analyst at Standard & Poor's in New York. ``Microsoft isn't going to lose market share to Google anytime soon. It's going to take some time and Google is fully aware of that.''
Customers use a Web browser to access Google Apps, which includes an online word processor, spreadsheets, presentation and e-mail software. The programs and users' files are stored on Google's servers, while most Microsoft programs are installed on individual computers on office desks.
Google has to persuade businesses to switch from software their employees already know how to use, and reassure them that data is safe stored on Google's machines. While Google says its approach makes it easier to manage the programs, they have fewer features and don't work if there's no Internet connection.
500,000 Customers
Google, whose stock has dropped 52 percent this year amid concern ad sales may dry up, says more than 500,000 organizations use Google Apps. Clients are mostly smaller businesses and universities, and 3,000 more sign up each day.
Microsoft, down 40 percent this year, lost 80 cents to $21.50 at 4 p.m. New York time in Nasdaq Stock Market trading. Google gained $3.02 to $332.
``We have to focus our efforts on people like Vivek, who want to be at the forefront,'' said Dave Girouard, Google's president of enterprise.
Kundra, a New Delhi native who lived in Tanzania before moving to Washington's suburbs at age 11, is betting on Google to help mend the District's technology woes. As a University of Maryland student, he often helped his father, a D.C. public- school teacher, fix his classroom computer.
When he took the D.C. post 17 months ago, Kundra found 85 percent of school computers had viruses. The city government's fiber-optic network cost $6.3 million more than planned last year, and police computers had less power than laptops used by students in coffee shops.
Startup Mentality
Kundra, formerly an executive at two startup companies, responded by creating a stock-market-like trading floor in his 700-person department.
Projects get rated ``buy,'' ``sell,'' or ``hold,'' based on whether they meet deadlines and financial goals, as well as targets for employee turnover and customer feedback. Teams produce quarterly reports, just like company earnings.
``We move capital to where it's most effective,'' Kundra said. ``I could find the price of a stock on a publicly traded company in real time. Why is it that I can't get that same level of data for D.C. government IT initiatives?''
Google got a ``buy'' rating to run an internal Web site for Kundra's department. He dumped a plan to pay $4 million for the Web portal to another company, which he declined to name.
Kundra said leaders from cities, states and countries have sought advice on using Google to run projects like a stock portfolio. He and Girouard demonstrated it for officials at the Democratic National Convention in Denver in August.
`Feisty Competitor'
Software may help Google diversify beyond the ads that make up 97 percent of revenue. Half its 500,000 business customers use the free version of Google Apps that is funded by advertising. Others pay as much as $50 for each employee annually for a version with no ads, more file storage, customer support and enhanced security.
Microsoft, whose $23.7 billion in cash and short-term investments was almost double Google's $12.7 billion in June, is building more data centers and adding features that let people store and share information over the Web.
``We look at Google as yet another feisty competitor,'' said Keith Hodson, a spokesman for Redmond, Washington-based Microsoft. Google's D.C. contract isn't a loss because the city and school district have multiyear agreements to use Windows and Office, Hodson said.
Still, Washington's Google users are finding new ways to work together, which may compel more people to switch, said Michael Nelson, who studies the future of the Internet as a visiting professor at Georgetown University in Washington.
``If you give people the right tools and the opportunities to use them, some pretty creative things can happen,'' he said. ``That's starting to happen with the D.C. government.''
To contact the reporter on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net
Last Updated: October 10, 2008 16:12 EDT
bloomberg.com |
