"Google, Microsoft and SUN - The Good, the Bad and the Ugly", Minneapolis Star Tribune, October 17, 2005

Is the Oct. 5 strategic agreement between Sun Microsystems and Google just another half-hearted fling between Silicon Valley technology giants, a "pity date" between high-tech CEOs? After all, Google's Eric Schmidt is a longtime lieutenant and friend of beleaguered Sun's Scott McNealy.

The details appear lackluster: Sun will include the Google Toolbar as an option in its consumer downloads of Java, and the two companies "have agreed to explore opportunities" for Google to promote Sun technologies, particularly the OpenOffice productivity suite.

But Sun sells engineering workstations, which offer little consumer influence for Google to leverage. And Google is the largest Linux (open source) installation in the world; from Sun's proprietary perspective, they are part of the problem, not the solution.

This partnership is unlikely to have much impact in the near-term, but it does present a snapshot of the information technology industry at an important transitional stage. It is a harbinger of the future, in which classical software and hardware vendors will find it increasingly difficult to grow and thrive.

The future prospects of Google, Microsoft and Sun resemble the three characters in "The Good, the Bad and the Ugly," Sergio Leone's 1966 "spaghetti Western." In the film's final scene, three ruthless bandits face off in a graveyard, shooting it out over buried treasure.

Now, this metaphor is fair only in comparing the three companies' business models, not their morality. All three are blue-chip firms, each of historical importance to the IT industry. All have brilliant engineers, first-rate executives, and have made many investors wealthy.

The Good

Google is Clint Eastwood's character, Blondie. He is not good in any conventional sense but has a more balanced skill set than his two rivals; less prone to making enemies than "the Bad," and a more nimble thinker than "the Ugly."

Google is succeeding because its business model is aligned with the "post-modern" IT industry. It is providing users with easy, intuitive and free navigation to the world's information resources, with online ad revenue driving profitability.

Google's future success is not assured; it must develop significant revenue beyond advertising. Microsoft's interest in buying a stake in AOL could lead to Google losing its AOL contracts -- or paying too much to buy AOL itself.

But unlike vendors of specialized hardware like Sun, or shrink-wrapped software like Microsoft, Google has the flexibility to leverage a variety of symbiotic relationships with other players in the market. Its relationship with Sun is one example; another is its recent announcement of collaboration with NASA's Ames Research Center, an inspired method of subsidizing R&D into the future of large-scale computing networks.

Google has been considered a threat to Microsoft's desktop dominance for some time. Initiatives like Google Desktop Search and Gmail -- a free 1 gigabyte e-mail account -- hint at Google's long-term intention to move individual users off the PC into cyberspace, hosted by Google, of course.

But if Google freely distributes Sun's OpenOffice, an open-source (free or near-free) Microsoft Office equivalent, it could erode the market share and profitability of one of Microsoft's two cash cows (the second, Windows, also is under long-term siege, by Linux).

The Bad

Microsoft is the Lee Van Cleef character, Angel Eyes. Smart and merciless, he does not play well with others, and is as likely to harm his partners as his adversaries, between which he draws little distinction. Microsoft has been attempting to become a "kinder, gentler" colossus, a metamorphosis still in progress.

But Microsoft's biggest challenge is the future, not the profitable present. It derives the vast majority of its profits from Windows and Office. Its online and consumer products are popular but not yet profitable, especially by Microsoft standards. The steady, gradual erosion of its two franchise product lines would pose a serious threat to Microsoft's future.

Of course, Microsoft has world-class research labs that could produce a new generation of profitable "killer apps." But the precedent of IBM and ATT suggests otherwise. ATT's Bell Labs -- inventor of the transistor and Unix -- was unable to stop its parent's decline, and it was corporate consulting, rather than scientific research, that repositioned IBM for success.

The Ugly

Sun is played by Eli Wallach, the scruffy bandit "Tuco," his gun emptied of bullets by Clint Eastwood. True, he could not have less resemblance to Grosse Pointe-raised Scott McNealy.

From the mid-1980s through the end of the dot-com era, Sun was supremely well-run and successful. Innovative, focused and profitable, it redefined open computing, cut the cost of high-end computing and brought Java to the world.

But Sun is by definition a high-value, high-margin vendor. Once Linux running on PCs became a viable alternative to its workstations, Sun's business model was obsolete. The "halo effect" of Java and the dot-com boom delayed this impact on Sun, which might otherwise have faltered earlier, like other high-end Unix workstation vendors such as Silicon Graphics (find a related column at www.opentechnologies.com/writings/CC011402.htm).

To second-guess Sun's recent strategic decisions is to miss the forest for the trees. For Sun, the competitive playing field has been tilted, from a level one to a vertical one resembling a cliff. The degree of difficulty has risen, and the most minor misstep could prove crippling or fatal.

In the present, Microsoft remains the most formidable of the three firms. From a shareholders standpoint, Microsoft, with its reasonable price-to-earnings ratio of 22, is a better value than Google, with its frothy P/E of 88. Sun has no P/E, with few profitable quarters since the dot-com era.

Who will win? The IT industry moves so fast that it is hard to predict. As Clint Eastwood said in another context: "If you want a guarantee, buy a toaster."