Email | Print    Type Size  -  +

Google's tough sell to Corporate America

Google gets serious about online business software, but corporations have yet to get serious about Google.

By Yi-Wyn Yen, reporter
Last Updated: August 27, 2008: 2:43 PM EDT

google_apps.03.jpg
Gallery
What's everyone yelping about? What's everyone yelping about? What's everyone yelping about?
Or is it digging? Or ninging? Zyng-ing? A rundown of some Web 2.0 startups getting a lot of buzz, if not necessarily a lot of revenues.
Photos
10 cool tools for your mobile phone 10 cool tools for your mobile phone 10 cool tools for your mobile phone
These software programs help you do everything calculate your carbon footprint to remotely monitor your home.

SAN FRANCISCO (Fortune) -- Steve Skinner, the head of information technology for a big Bay Area real estate agency, recently got his umpteenth call from Google. Would Skinner be interested in buying a package of e-mail, word processing and other software known as Google Apps for his company's 1,300 employees?

Skinner once again declined. He thinks that Google Apps, while promising, has a ways to go before it can crack the market for corporate software that Microsoft has long dominated. In June, Skinner renewed a contract to run Microsoft's desktop software for another three years.

"I don't know if [Google Apps] is ready for primetime yet," said Skinner, the technology chief at Saratoga, Calif.-based Alain Pinel Realtors.

It's a refrain that Google (GOOG, Fortune 500) hears a lot these days from big companies. Eighteen months after making a push into corporate software, only a handful of Fortune 500 and mid-sized companies have started using Google's programs - mostly anti-spam or calendaring tools - and none have embraced Google Apps in its entirety, preferring instead to stick with Microsoft Office or its distant competitors.

Microsoft (MSFT, Fortune 500) last year sold $12.2 billion worth of Office software, according to research firm Gartner. Google pulled in just $4 million from Google Apps.

One reason for Google's tough slog is simple inertia. Switching from one set of corporate software to another is hugely time-consuming. But Corporate America's reticence also stems from Google's overarching goal: to replace packaged store-bought software loaded on a desktop with programs that reside remotely on Google's servers and are accessed via the Internet.

A lot of companies, from IBM (IBM, Fortune 500) and Oracle (ORCL, Fortune 500) to Hewlett-Packard (HPQ, Fortune 500) and Salesforce.com (CRM), are betting that Web-based, or "cloud," computing is the future of software (consumers already use it to access their Yahoo or AOL e-mail). On Wednesday, Cisco bought e-mail software developer PostPath for $215 million as part of its push into online business applications, a market that Merrill Lynch estimates will be worth $95 billion in five years. Even Microsoft, which has a lock on 98% of the market for desktop office software, is getting into the game.

The market for online office software is "wide open," said Guy Creese, an IT analyst with the Burton Group who predicts that the race will come down to Microsoft Office and Google Apps. To win, he added, "Google has to come up with something significantly cheaper and better than Office."

The fact that no major corporation has switched to Google Apps doesn't faze Matthew Glotzbach, management director for Google Enterprise. Big businesses increasingly are showing interest in the software. "This is the playbook we expected," he said. "With any new technology you're going to see smaller companies being the earlier adopters."

Weighing the pros...

On the face of it, Google has a winning proposition: Google Apps, which includes e-mail, calendar, Web messaging, word processing, spreadsheets, and slideshow presentations, is much cheaper than Microsoft Office: $50 per user per year, compared to the $350 per user that major corporations spend on average each year to run Office and Microsoft Outlook e-mail. With Google Apps, teams of workers can work on a single spreadsheet or document in real-time. Also, there's no need to back-up or transfer files from multiple computers.

According to Google, more than 500,000 companies use at least one its programs and about half of those are using a free version. Universities in particular like the free Gmail service for students, although it offers less storage and fewer security features than the fee-based version. Cash-strapped startups are also turning to Google Apps.

So far, though, the largest Fortune 500 company to use Google Apps is Sanmina-SCI (SANM, Fortune 500), an electronics manufacturing company that has 900 of its 45,000 employees using the full package of applications. Another paying customer is Valeo, a publicly-traded French automotive supplier. AndGeneral Electric (GE, Fortune 500) is running Postini, an anti-spam technology that Google acquired last year, for its 300,000 employees.

A year ago, Washington D.C. became the first U.S. city to use Google Apps when it paid $1.9 million for 38,000 accounts. The Google services are optional, and employees primarily use Microsoft Office and e-mail. For Vivek Kundra, the city's chief information officer, the Sept. 11, 2001 terrorist attacks highlighted the advantages of having sensitive data on a virtual network. Google stores information seven times on seven different servers across the country.

...and the cons

Even so, eight IT directors interviewed for this story say they're reluctant to switch to Google Apps. They cite a number of reasons common to all "cloud computing" providers, including concerns about reliability and the risks of storing employee records or trade secrets on another company's servers.

Steve Skinner of Alain Pinel Realtors, for instance, figured he could save $250,000 a year by switching the company's e-mail server from Microsoft Exchange to Google's Gmail. But a two-hour service outage a few weeks ago reminded him that there's a price to giving up control over his company's technology.

For Shoukry Tiab, the vice president of IT at Jenny Craig, which uses Postini and Google Maps, the primary concern is security and confidentiality. "Am I nervous to host corporate information on someone else's server? Yes, even if it's Google."

Jenny Craig instead is testing SharePoint, Microsoft's answer to Google Apps but with a twist: SharePoint is designed to work in conjunction with desktop software so that, if there is an Internet outage, critical information isn't inaccessible. Google is working on making its applications available offline.

SharePoint points to another problem for Google. According to Creese, the Burton Group analyst, Google Apps doesn't yet have some advanced features that businesses demand, like the ability to create footnotes.

Another reason for Google Apps' slow start: It began in 2006 as a popular free package of programs for consumers before Google last year rebranded it as a service for businesses. Convincing companies to embrace Google Apps isn't as easy, but Glotzbach, the Google Enterprise executive, thinks the strategy will ultimately pay off.

"The way people work is shifting," said Glotzbach. "It's all about working in teams, sharing information, and working across company boundaries. Google Apps is designed around this new paradigm." To top of page

Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.19 -0.02 -0.09%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 5:39pm ET
More Galleries
50 years of the Ford Mustang Take a drive down memory lane with our favorite photos of the car through the years. More
Cool cars from the New York Auto Show These are some of the most interesting new models and concept vehicles from the Big Apple's car show. More
8 CEOs who took a pay cut in 2013 Median CEO pay inched up 9% in 2013 to $13.9 million. But not everyone got a bump last year. Here are eight CEOs who missed out. More
Sponsors
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.