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The looming battle between old economy (Microsoft) and new economy (Google)

Google and Microsoft are duking it out for developers' hearts and minds. But is Amazon the wild card?

For those who have spent years wringing their hands over Microsoft's desktop dominance, have no fear: competition is on its way. It's called Google, and it promises to dramatically shake up the computing market by shifting the battle to the Internet, as an article in The New York Times insightfully states.

We should have seen this coming. The cause of Microsoft's weakness is its overreliance on its strengths, a classic "innovator's dilemma." In other words, Microsoft's fetish for the desktop metaphor threatens to leave it with dominance of yesterday's kingdom just as the world has moved on to a new one.

The growing confrontation between Google and Microsoft promises to be an epic business battle. It is likely to shape the prosperity and progress of both companies, and also inform how consumers and corporations work, shop, communicate, and go about their digital lives. Google sees all of this happening on remote servers in faraway data centers, accessible over the Web by an array of wired and wireless devices - a setup known as cloud computing. Microsoft sees a Web future as well, but one whose center of gravity remains firmly tethered to its desktop PC software. Therein lies the conflict.

Both companies believe that the desktop is important, but how important is critical. For Google, 90 percent can be done "in the cloud." For Microsoft? Well, let's just say it has a financial interest in ensuring that number is much, much lower.

What's interesting is that this battle is forever changing (and raising) the barriers to entry. If it's a battle of the "cloud-based computers" then, as Nick Carr notes, it will be harder and harder for new entrants to compete. According to Yahoo, there are only five "computers" or competitors left: Microsoft, Google, Yahoo, IBM, and

This last one is particularly important because it enables a potential army of new startups, each building on the Amazon cloud, as Dave Winer writes:

Today, when a company raises VC, it's probably because their app has achieved a certain amount of success and to get to the next level of users they need to spend serious money on infrastruture. There's a serious economic and human wall here. You need to buy hardware and find the people who know how to make a database scale. The latter is the hard problem, the people are scarce and the big companies are bidding up the price for their time. Now Amazon is willing to sell you that, to turn this scarce thing into a commodity, at what likely is a very reasonable price. (Haven't had time to analyze this yet, but the other services are.) Key point, the wall is gone, replaced with a ramp. If you coded your database in Amazon to begin with you will never see the wall. As you need more capacity you have to do nothing, other than pay your bill.

In sum, the walls are falling even as they rise. Google and Microsoft will be locked in a death match over the fate of the desktop. Perhaps this will leave them exposed to new entrants building on top of Amazon?

We'll see...