I had to laugh this morning when I saw this. In the Reuters article, Bill Gates is quoted as peevishly complaining about Google's rumored entrance into the mobile handset software market. Reuters quotes Gates from a NY Times article:

"How many products, of all the Google products that have been introduced, how many of them are profit-making products?" the Times quoted Gates as saying.

"They've introduced about 30 different products; they have one profit-making product. So you're now making a prediction without ever seeing the software that they're going to have the world's best phone and it's going to be free?"

It's ironic, of course, to hear him complain about someone introducing a free product as a competitive move. Microsoft, of course, has executed that maneuver repeatedly throughout its history; in fact, I think they ran into a little trouble with the US Government when they did that with their Internet browser.

What irks Gates, however, is how Google is copying a page out of the Microsoft playbook: deliver a free product that complements your existing cash cow product in a way that harms your competitor whose business model demands that product be revenue generating. Internet Explorer served that purpose against Netscape's Navigator: Microsoft could afford to thrown in the browser since it was selling an operating system; Netscape, by contrast, with no operating system revenue to ride on, needed to sell its browser. Once Microsoft gave away its browser, what was the likelihood that people would buy Netscape's?

This time, however, the shoe is on the other foot. Google makes its money by getting people to access its paid search functionality (which is, as Gates notes, so profitable it subsidizes everything else Google does). Anything that drives more traffic to Google strengthens their core business, so giving away software to increase traffic makes sense.

By contrast, Microsoft makes its money by selling software, so it can't afford to give away software (in point of fact, it could give away phone software as part of a larger strategy to achieve platform ubiquity, but it is so locked into its belief that its software is so valuable and it so deserves its market that it would never consider giving away its software on one platform in service of the larger strategy

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