Microsoft to Google: Get Off of My Cloud

 

Corporate America is increasingly leaving computing to the experts. Why go to the trouble and expense of building and managing complex systems to handle your spiraling data-crunching needs when another company can do it for you? And who better, faster, or cheaper than Google (GOOG)?

That's just the kind of conventional wisdom Debra Chrapaty wants to change. As Microsoft's (MSFT) vice-president for Global Foundation Services, Chrapaty wants to prove that her company is no less capable of running the sprawling data centers to offer software doled out via the Internet. The company is especially keen to handle the ubiquitous Microsoft software that consumers and corporations have been running for themselves for the past few decades. "Google has done a great job of hyping" its prowess, Chrapaty says. "But we're neck and neck with them."

And if Microsoft isn't there yet, it may be soon. Chrapaty, who's in charge of Microsoft's data centers, is stepping up a multibillion-dollar building binge, BusinessWeek has learned. Her group is embarking on a plan to build in the coming years some 20 supersize data centers that can cost as much as $1 billion apiece, according to a person familiar with Microsoft's plans. "We're going to reinvent the infrastructure of our industry," Chrapaty says. She declines to discuss specifics of the plan.

Google's Got a Head Start

The moves are designed to support what Microsoft describes as the biggest strategic shift since it first targeted the Internet in the mid-1990s. The company has unveiled a range of offerings in recent weeks that embrace what's come to be known as "cloud computing." There's Azure, a new operating system that lets companies run software either on their own computers or as a service delivered via the Internet by Microsoft. There's a new Windows Live offering that lets consumers store, retrieve, and share photos, blogs, and other Web content with friends. And Microsoft has announced an Internet version of its Exchange corporate e-mail, and plans to do the same with its Office software. If Chrapaty's group can't handle the load, many customers may decide to forgo Microsoft's products in favor of rival cloud computing services.

Traditionally, Google has positioned itself as the leader. "We've been designing infrastructure for the cloud for years," says Matt Glotzbach, a manager who works on Google Apps for corporations. "We've got a pretty big head start vs. a company like Microsoft."

Tapping into Cheap Energy

Still, Microsoft can hold its own, says Gartner (IT) analyst David Cappuccio. "Microsoft may certainly be just as good" in areas such as energy efficiency, Cappuccio says. And amid the global economic malaise, cash-rich Microsoft and Google are alone in being able to "throw several billion dollars into something like this," says Matt Rosoff, an analyst at Directions on Microsoft.

Microsoft's bold data center strategy dates back at least five years. Before that, the company relied heavily on other hosting companies to do the work. Soon after the arrival of Chrapaty, a former chief technology officer for the NBA, Microsoft decided to bring the job in-house. When in 2005 Ray Ozzie persuaded Microsoft founder Bill Gates and CEO Steve Ballmer to make the move to online delivery of software in 2005, running data centers became even more important. Chrapaty began bringing in industry luminaries from companies including Hewlett-Packard (HPQ) and Intel (INTC).

Google added voice recognition technology to the search software it distributes through Apple for its iPhone.

Gummi Hafsteinsson, Google Mobile Applications product manager, offered a demo of the application at Google's headquarters in Mountain View, Calif. Hafsteinsson simply opened the Google Search application on his phone, held the phone up to his ear, and spoke.

The application combines voice-recognition technology with Google's search index and the iPhone's ability to track a user's location to offer results keyed to his or her whereabouts. "This is a completely open-ended query stream, so you can say anything," Hafsteinsson says. "Anything you might want to type into Google.com, you can say to this applciation."

The move helps plug a gaping hole in the iPhone's capabilities--voice recognition--while pitting Google (nasdaq: GOOG - news - people ) against Microsoft (nasdaq: MSFT - news - people ), whose Tellme unit has long sought to bridge the gap between phones and the Web with voice recognition-enabled applications.

"Imitation is the best form of flattery, so welcome to the party," said Dariusz Paczuski, senior director of Tellme consumer services. Tellme's software allows those with BlackBerry's or Samsung's Instinct smart phone to search for information using the company's voice recognition technology. Microsoft acquired Tellme Networks in March 2007.

Expect more to come. Forrester principal analyst Charles Golvin has long argued that voice recognition, while largely ignored by application developers, will become a more common way to connect users with sophisticated data services going forward. "It's the interface that is, after all, the most widely used, the interface that people are most comfortable with," Golvin says. "It makes sense that this would come of age."

Tellme's Paczuski confirmed that his group is working on similar applications for the iPhone and smart phones running Microsoft's Windows Mobile software.

The update to Google's search application for the iPhone, which Apple (nasdaq: AAPL - news - people ) will release through its App Store software distribution service for the smart phone, will allow users to ask a question and get an answer from the Mountain View, Calif.-based company's search engine.

The results will also be linked to a user's location. So asking for coffee or pizza will direct users to a nearby location.

The application is one of a number of voice-friendly third-party applications for the iPhone that have helped close the gap between the iPhone and mobile phones that have long given users the ability to perform basic tasks, like dialing phone numbers, with voice commands.

While Google is best known for its Web search service, it has been pushing aggressively into telephony. In October, T-Mobile began selling the G1, a handset built around Google's smart phone software. In April of 2007, Google launched GOOG-411, a service that allows users to call an 800 number to get information by phone.

On Friday, Google shares fell $2.06, or 0.66%, to $310.02. Google shares are down more than 50% year-to-date.

The most recent federal disclosure forms offer a stark reminder of Microsoft Corp.'s mighty Washington presence: The software giant's tab of almost $2 million for the third quarter alone nearly equaled the amount its rival Google Inc. spent in the first nine months of the year.

But Google already has spent more on lobbying this year than it did for all of 2007 as the Internet search company starts to emerge as a formidable player in D.C. lobbying circles.

The lobbying muscle of both companies was on full display in recent months as Microsoft and Google battled over Google's plans to sell some of the online advertisements that appear alongside search results on Yahoo Inc.'s Web site. Google and Yahoo entered into the partnership in June in an effort to keep Yahoo out of Microsoft's hands.

But Google walked away from the deal last week in the face of an antitrust challenge being prepared by the Justice Department. That retreat marked a key victory for Microsoft, which had mounted a major lobbying and public relations offensive to convince the government to block the agreement.

It's unclear whether the outcome would have been different without Microsoft's efforts as it was hardly alone in opposing the deal. Some of the nation's biggest advertisers also had warned that the partnership would drive up the cost of online advertising and cement Google's control over the market.

Microsoft had "the tail winds working in its favor," said Stanford Washington Research Group analyst Paul Gallant. But he added: "Microsoft played this about as well as it could be played."

Jeff Chester, executive director of the Center for Digital Democracy, a consumer advocacy group that opposed the deal, went even further. "It is possible that the Justice Department might have come to a different conclusion" had Microsoft not become involved, he said.

Indeed, it has escaped no one's attention that the Bush administration has allowed many big, controversial mergers to go through, including Google's recent purchase of online ad service DoubleClick.

While Microsoft and Google were on opposite sides in the battle over the Yahoo partnership, they have found themselves aligned in other big lobbying fights. The two companies led a recent push to open up "white spaces" -- the unused, unlicensed spectrum between television channels -- to deliver wireless Internet access. That effort paid off when the Federal Communications Commission approved the use of white spaces for broadband last week.

Google and Microsoft also have been key proponents of reforming U.S. patent laws to address a mounting backlog of applications and halt the increase in infringement litigation often driven by poor-quality patents.

In both cases, the companies have faced off against other powerful industries with deep pockets and well-established lobbying arms in Washington. In the white spaces fight, Microsoft and Google took on the National Association of Broadcasters. In the patent reform dispute, they have battled the nation's big pharmaceutical companies and other industries that want to leave the existing system intact.

Microsoft has had a presence in Washington for years -- which it beefed up significantly after becoming the target of a major Justice Department antitrust suit in the late 1990s.

The Redmond, Wash.-based company spent $6.9 million on federal lobbying during the first three quarters of this year, compared with $9 million in all of 2007, according to disclosure forms. The company easily outpaced Google and Yahoo combined in the third quarter -- spending $1.98 million, compared with Google's $720,000 and Yahoo's $570,000.

But Google is catching up. The company spent $2.1 million on federal lobbying during the first nine months of this year, compared with $1.5 million for all of 2007. And while not all big technology companies have chosen to play active roles in the nation's capital, Google wants to be a key participant.

"Google clearly appreciates the importance of engaging in Washington" since it has a lot at stake in number of critical policy debates, said Ed Black, president and chief executive of the Computer & Communications Industry Association. "Google has been ramping up at a rapid pace for a Silicon Valley firm."

The Mountain View, Calif.-based company opened its Washington office in 2005 and has hired people on both sides of the aisle to staff it. It has made an active effort to engage public interest groups and has hosted seminars on a range of issues at the Washington office. In addition, Google Chief Executive Eric Schmidt endorsed President-elect Barack Obama during the campaign.

Contributions by Google's political action committee totaled about $282,000 during the 2008 campaign, according to the Center for Responsive Politics. But that tally again was easily outpaced by Microsoft's $1.7 million during the same period.

Chester remains concerned that much of the corporate lobbying takes place behind closed doors -- even if it involves matters that have major implications for the public, such as the fight over the Google/Yahoo partnership.

"The issues of paramount importance to the public and the economy often get played out as fights between corporate behemoths," Chester said. "It's shameful that these digital giants have engaged in business-as-usual politics. It shows that our Internet policies are up for sale regardless of the consequences for consumers and competition."

In Pictures: Who's Shaping Obama's Economic Agenda

President-elect Barack Obama has laid out a broad plan to deal with the economic crisis, promising to enact a fiscal stimulus to promote job growth in the early days of his presidency if Congress does not get to it within the next few weeks.

"Immediately after I become president, I will confront this economic crisis head-on by taking all necessary steps to ease the credit crisis, help hardworking families, and restore growth and prosperity," Obama said, following a meeting with a 17-member brain trust of key economic advisers.

He said that if lawmakers don't act on a stimulus package quickly, "it will be the first thing I get done as president of the United States."

Speaking to a packed hotel ballroom full of reporters in Chicago, and flanked by his all-star cast of advisers, Obama outlined four broad points to dealing with the economy. First, he wants to see middle-class rescue plan that creates jobs and extends unemployment benefits. Second, he reiterated that the financial crisis is global and his administration will work to contain it.

Third, he said his administration will review the current plan to stabilize financial markets, but he also wants to see the Treasury work closely with other government agencies to make sure families stay in their homes. Finally, Obama said he will continue to move forward with a plan that will create jobs and focus on health care, clean energy and middle-class tax relief.

Obama said he has "made it a high priority" for his transition team to help the ailing auto industry, but he reminded the crowd that the U.S. only has one president at a time. He is scheduled to meet with President Bush at the White House Monday.

In Pictures: Who's Shaping Obama's Economic Agenda?

The meeting came the day the government announced unemployment has reached a 14-year high of 6.5%, with 240,000 jobs cut in October, up from 6.1% in September and higher than the worst point of the 2001-03 recession. On Thursday, major U.S. retailers reported double-digit sales declines for October.

Selecting the economic and financial advisers to steer him through an undoubtedly rocky first few months is the most important decision facing the president-elect. Of paramount importance is who will succeed Treasury Secretary Henry Paulson, a Wall Street veteran who is largely responsible for the government's economic rescue package--which the Obama administration will inherit in just over two months.

The next Treasury secretary inherits a badly shaken financial system, a mandate to rein in Wall Street's excesses and hundreds of billions of dollars' worth of risky new programs ginned up by the current president to stop the bleeding.

Washington insiders say it's likely Obama will move quickly to name Cabinet nominees so that they can move through the Senate confirmation process quickly and hit the ground running in January. Obama wants to avoid the experience of President Bill Clinton, who waited until relatively late in his transition period to fill Cabinet posts. So far, Obama has made only one appointment, Rep. Rahm Emanuel. D-Ill,, a fellow Chicagoan, as his White House chief of staff.

Some of the people thought to be under consideration for the Treasury post are scheduled to attend the meeting Friday, including former Treasury secretaries Lawrence Summers and Robert Rubin, business professor and former head of the Council of Economic Advisers Laura Tyson and former Federal Reserve Chairman Paul Volcker.

Warren Buffett, the billionaire chief executive of Berkshire Hathaway (nyse: BRK - news - people ), whom bookmakers had given short odds for the Treasury post before the election, will phone in.

Conspicuously absent from the list of attendees was Timothy Geithner, president of the Federal Reserve Bank of New York. He, along with ex-Treasury Secretary Summers, are thought to be the front runners for the job. Other names being floated, with longer odds, are JPMorgan Chase (nyse: JPM - news - people ) Chief Executive James Dimon, Merrill Lynch (nyse: MER - news - people ) executive and Wall Street veteran John Thain and New Jersey Gov. Jon Corzine, a former Goldman Sachs (nyse: GS - news - people ) executive.

Obama's task in choosing a Treasury secretary is complicated by the situation on Wall Street. The government is taking a direct $250 billion stake in the U.S. banking system by injecting banks with capital. Because all of the nine major U.S. banks, as well as dozens of regional and smaller banks, are participating, appointing a banker could raise criticism that Obama is putting a fox in charge of the hen house.

The transition team has thrown a spotlight on the high-profile gathering because it wants to show that Obama has a steady hand on the economy, that he's listening to all sides and that he's seeking advice from well-respected leaders with significant experience in government and business.

Others in attendance included TIAA-CREF President and Chief Executive Roger Ferguson, who is a former vice chairman of the Federal Reserve's Board of Governors. With his recent central bank experience (1997-2006), he can give Obama valuable insight into how financial regulation should be restructured--a goal shared by lawmakers on both sides of the aisle.

Another valuable ally in this role is William Donaldson, a former Securities and Exchange Commission chairman and former chairman of the New York Stock Exchange.

Not about to be criticized that it's listening only to Wall Street, the transition team is also seeking the input of David Bonior, a former Michigan congressman and an ally of labor groups, who has been mentioned as a potential secretary of labor. Michigan Gov. Jennifer Granholm can provide a voice for the troubled automakers in her state. Also slated to attend, Bill Clinton's former Labor Secretary Robert Reich, whose Labor Department implemented the Family and Medical Leave Act and the Pension Protection Act.

Of course, representatives from the business community are also on Obama's panel. They include Xerox (nyse: XRX - news - people ) boss Anne Mulcahy, Time Warner (nyse: TWX - news - people ) Chief Executive Richard Parsons and Google (nasdaq: GOOG - news - people ) CEO Eric Schmidt.

The tech community has praised Obama as the first "tech president" and, if he's seeking advice from Silicon Valley, few can offer as much insight as Schmidt.

Obama said he believes that the election of a new president can inspire confidence in the economy. "I'm confident that a new president can have an enormous impact. That's why I ran for president."

NEW YORK -

Shares of some top internet companies were up at the close of trading:

Akamai Technologies (nasdaq: AKAM - news - people ) rose $1.06 or 7.8 percent, to $14.68.

Amazon rose $2.68 or 4.8 percent, to $58.45.

eBay (nasdaq: EBAY - news - people ) rose $.74 or 4.9 percent, to $15.75.

Google (nasdaq: GOOG - news - people ) rose $20.45 or 5.9 percent, to $366.94.

Yahoo (nasdaq: YHOO - news - people ) rose $.60 or 4.7 percent, to $13.35.

Copyright 2008 Associated Press. All rights reserved. This materia