New alliance sees opportunities vs. Microsoft

Google and Sun Microsystems caused a stir Tuesday with the mere hint that they could be positioning themselves to jointly challenge the dominance of Microsoft Corp.'s Office programs.

The companies announced that they would "explore opportunities" to promote and distribute each other's technologies -- including Google's search toolbar and OpenOffice.org, an open-source Microsoft Office rival based on Sun technology.

Details were scarce, beyond a plan to offer the Google tool bar along with Sun's Java technology. But the announcement generated speculation that Google could be aiming to distribute OpenOffice.org through its widely used Web site or offer a Web-based version of the program, potentially boosting competition for Microsoft Office.

If that comes to pass, it would be the latest example of an area where Google could pose a long-term threat to one of Microsoft's dominant programs.

At a news conference, however, Sun Chief Executive Scott McNealy and Google Chief Executive Eric Schmidt declined to detail the additional "opportunities" they plan to explore.

Asked if Sun and Google were targeting Microsoft through their partnership, McNealy didn't answer directly. "We're going after revenue, growth, profits, customers and customer ease of use," he said.

But he made it clear that Google and Sun will have more to reveal in the future.

"You could speculate all day long about all the different places and ways we could go and work together, and they're all legitimate speculation," McNealy told reporters. "There's lots of conversation, lots of cross-pollination of ideas and philosophies and people inside the organizations, and so we expect more."

At the very least, the agreement between the Microsoft rivals further demonstrated the power of the Google brand, not only among consumers but among investors. Shares of Sun Microsystems climbed more than 6 percent Monday after it simply said that it would be announcing some sort of collaboration with Google on Tuesday.

Industry analysts said the lack of details in that announcement makes it difficult to assess the actual threat posed to Microsoft by the new alliance between Sun and Google.

"Google is collecting partners and assembling capabilities that over time can erode Microsoft's position, but there's no short path from where they are today to a position of market dominance" in Microsoft's traditional areas of strength, said industry analyst Roger Kay of Endpoint Technologies Associates.

One of Microsoft's big strengths is the Office productivity suite. Office and related programs in the company's Information Worker group brought in more than $11 billion in revenue for the company last fiscal year.

During the news conference Tuesday, Google's Schmidt cited Web-based e-mail programs, such as his company's free Gmail service, as one area where text editing and document creation are already taking place online. Gmail competes with Microsoft's Hotmail and similar offerings from others.

Schmidt acknowledged that it "makes sense," as Web technologies improve, for more document writing and editing capabilities be offered through online services -- not just through traditional programs stored on the desktop computer. But he didn't talk about any of Google's plans in that regard.

Beyond posing a threat to Office, a Web-based word processor or spreadsheet program could take advantage of the Web to run on top of various operating systems, thereby reducing the need for computer users to rely on Microsoft Windows.

"Long term, I do see the possibility that Google could offer a hosted office application suite online," said Matt Rosoff, industry analyst at research firm Directions on Microsoft. "I think that's one of the reasons Microsoft has been concerned about them and watching them closely for the last couple years."

Such hosted services offer access to programs and files stored online, rather than directly on a desktop computer, often for a monthly subscription fee.

Microsoft Chief Executive Steve Ballmer said in a recent interview that he expects the company itself to offer more of its programs via online subscriptions to consumers and businesses in the coming years, in addition to traditional PC software.

Sun also has a partnership with Microsoft, established when the companies settled the antitrust suit that Sun had filed against the Redmond company. McNealy described that partnership Tuesday as something that was necessary because of customer demands for interoperability between Microsoft and Sun products. He earlier had called the Google partnership a natural fit given the strategic directions of the two companies.

Shares of Sun climbed further in advance of the Google news conference Tuesday morning but declined after the announcement was made, closing up a penny on the day, at $4.20.

P-I reporter Todd Bishop can be reached at 206-448-8221 or toddbishop@seattlepi.com.

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