Microsoft: not the time to scale back, says CEO Ballmer

In another gutsy email sent to Microsoft (MSFT) employees this past Friday, Steve Ballmer acknowledged that Microsoft has made big bets before to move ahead, and it would be doing so again. Credit Suisse analyst Jason Maynard summed this entire article up in a neat, tidy, ribbon-endowed package by saying that Ballmer's comment, "directly reflects the threat of software as a service and online business models to Microsoft's legacy, PC-centric franchise." In other words, he is talking about many firms and efforts, but that comment was aimed squarely at Google (GOOG). This is gearin' up to be the sequel to Fight Club. As we know, though, the number-one rule of Fight Club is this: there is no fight club. That's what Google's quiet premise is at least. Photo credit: Fox Movies.

One of the most severe, developing battles of David Goliath and Goliath right now -- and it will only heat up -- is between Microsoft and Google. While some see MSFT as being able to easily survive with its Office Franchise and other areas like Windows Live (which may be too late to the game to catch up), the ability to take the underlying operating system out of the equation and feed the customer all the apps they need to be productive -- things like email, calendaring, contacts, collaborative word processing and spreadsheets -- is a threat to the very core of the traditional model of the PC (and Microsoft) landscape. Microsoft's upcoming Vista operating system may change this outlook -- maybe.

Should we all dump our Microsoft shares now? Of course not -- the company has an incredible portfolio of software (and hardware, like, um, the Xbox 360). Its server software and expertise in a wide swath of areas makes Microsoft formidable in many areas, although the most media-understandable -- the PC universe -- gets all the attention in the news. Google is not yet a threat in many of the markets Microsoft operates in. But with the Google search appliance and its move to make its Gmail email service usable on your own domain name (and maybe soon on a company's internal network -- a hint at trying to replace Microsoft Exchange Server), this is a fight for the long haul. I'm buyin' some popcorn and sitting down to watch the fight.

upd: [disclaimer: I own MSFT shares as of 5-2-06]