In the nascent battle between Google and Microsoft for enterprise software customers, there is one stark reality that customers who choose Google must accept: Google's future does not depend on the success of Google Apps.
Whereas Microsoft needs Windows and Office to maintain long-term financial success, Google makes nearly all of its money on advertising, rather than on software licences. In 2010, Google earned US$28.2 billion in advertising revenue and only $1.1 billion in non-advertising revenue.
That doesn't mean Google can't make great business software. But it does mean current or potential Google customers and business partners should carefully examine any change to the core structure of the company, in case it affects the future of Google's enterprise software business.
Such a change occurred when longtime CEO Eric Schmidt said he will step aside in April so that co-founder Larry Page can take over the reins. Schmidt, previously CEO of Novell and CTO of Sun Microsystems, has by far the most enterprise experience in the triumvirate that runs Google, which also includes co-founder Sergey Brin.
"Eric clearly had passion for enterprise software," says Gartner analyst Whit Andrews. "He cared about enterprise software. He worked at a lot of companies that sold enterprise software and bunch of enterprise products. That history is not in place with Page."
Google officials consider Google Apps a strategic business and, "they are highly ethical so they would not just pull the plug," adds Gartner analyst Tom Austin.
But it remains to be seen how committed new CEO Larry Page will be to enterprise customers. From an investor perspective, a blow to Google's enterprise business would be bad but not catastrophic. But "from an enterprise customer's perspective, obviously there is a great deal more concern," Andrews says.
What to say
To reassure these customers, Andrews says Page should say several things. "He could say, 'We intend to grow the portion of our revenue that is coming from the enterprise business. We are investing in the enterprise. We see it as an exciting area for growth. We hope that it takes off'."
Unless Page delivers that kind of message, it will be difficult for customers to know for sure how much of an emphasis he intends to put on the enterprise business. "If Google is a real enterprise company, then we will need to see Page act like that is the case," Andrews says. "That will include evangelism for the enterprise business, similar to what we saw from Eric."
In addition to paying customers, "If I were a managed services provider I would be looking for that same kind of message," Andrews adds.
Google boasts that more than three million businesses are running Google Apps, which costs $50 per user per year and includes Gmail, Google Calendar, Google Docs and several other services.
These are mostly small businesses. Gartner says Gmail has captured less than one percent of the enterprise email market, counting only businesses with at least 100 paid seats.
Managed services partners are jumping on board, though. "A growing number of MSPs have embraced the Google Apps Reseller program," says an article on MSPmentor.net, which tracks the managed services provider market.
MSPmentor says Schmidt's Google has gained "more channel partner momentum with managed services providers. Indeed, 29 of the world's top 100 MSPs now promote Google Apps to their end-customers." The article asks ,"Will that trend continue when the CEO crown soon shifts from Schmidt to Google co-founder Larry Page?"
Spin off?
While there's no reason to think Google would kill off Google Apps, there are scenarios that could trouble enterprise customers, Gartner analysts say. Google investors could conceivably push the company to spin out the Google Apps business in order to create more value, Andrews says.
Even if that is unlikely, it is possible Google's efforts could shift away from the enterprise if the company struggles in other areas.
"Google Apps is less strategic for them than mobile, Android or all their advertising-related businesses. It has to be," Austin says. "And the strategic threat they have to deal with is their failure in social, which is attracting more and more user time. If push comes to shove and management decides to jettison less-strategic initiatives, Google Apps could be in trouble."
Page, obviously, has his roots in the consumer business, teaming up with Brin to build the Google search engine that made them famous billionaires. Will he stand up for the enterprise the same way Schmidt would? It's probably too early to know for sure.
"Page has less enterprise business experience. Schmidt has deeper enterprise roots," Austin says. "Does that mean they will back off on their enterprise investment on GAPE [Google Apps Premier Edition]? We don't know but we would be surprised if they don't raise that question."