Dethroning Microsoft Office: The G Suite Opportunity
When I think of products underpinning our economy that are ripe for disruption, my mind first jumps to Microsoft and its overwhelming hold on enterprise productivity. Microsoft deserves credit for dramatically accelerating the productivity growth of corporate America by bringing us Word, Excel, PowerPoint, and more, by leveraging the power of computing. They were also the first to identify the massive recurring revenue opportunity in selling Office licenses on a subscription basis, way before the rest of us realized that subscription-based SaaS was the B2B business model of the future.
Having said all that, I am now coming out… as a Microsoft Office hater. I find that most Office application contains a variety of superfluous functionality, strange quirks, and off-putting design choices. Despite my gripes, Microsoft has managed to retain >90% market share for decades now. The reason for that partially derives from its incumbent advantage and the massive switching costs involved to shift away from Office, and specifically in the way that Office is vertically integrated.
Ben Thompson of Stratechery puts it the best in the following example:
“In truth, though, … , the company’s software products have always been designed to work together, particularly in the enterprise. Windows Server came with Active Directory, which undergirded Microsoft Exchange, which users accessed via Outlook on their Windows computers that, of course, ran the rest of the Office suite better than anything else. It was, frankly, a pain in the rear end to try and switch out any of the pieces, which Microsoft leveraged to not only lock in its position, but also drive continual upgrades, which it used to justify subscription pricing years before the rest of Silicon Valley discovered the SaaS business model.”
Which competitor actually has the capability and scale to counter this dominance? The obvious answer here is Google and G Suite, as you might have guessed from the title of this article.
I admit that, as a user of these tools, I am personally biased towards G Suite — having grown up on G Suite and using it throughout college and internships, my recent transition to Office at my first full-time job was tough, to say the least. Some might find my reaction to this circumstance a bit dramatic, but I think it’s reasonable to feel disappointed at having to settle for what are arguably worse user experiences — there’s a reason why G Suite Apps are considered best-in-breed.
So why has G Suite failed to be a meaningful challenger to Office? Google recognized very correctly early on that the cloud should be where work is done and stored, because it allows for incredible opportunities in collaboration (working with others in real time) and in the storage and dissemination of information (work product living in the cloud, easily accessible for anyone by simply giving permission). This sort of first-mover advantage should have given G Suite ample latitude to completely disrupt the Office business, though this disruption has not materialized. Some of this may be attributable to the fact that G Suite was not marketed well towards the enterprise segment at first, but even with Google’s increased emphasis on its B2B cloud business in the last few years, G Suite has not seen significant growth. Beyond signing a few marquee clients, like Verizon and Buzzfeed, G Suite has only managed to take at most 1% market share from Microsoft annually (Gartner).
The answer to this conundrum follows from the example above: Office is greater than the sum of Word, Excel, and Outlook, while G Suite didn’t do enough to sell itself as a holistic productivity solution. Additionally, G Suite’s individual app functionality, perhaps because it lives in the cloud, could never live up to the how powerful their Office equivalents were when used offline. Office’s vertical integration in addition to their app’s perceived greater utility locks down clients and is responsible for the giant moat around Office’s market share.
Having established this context, I think that the new G Suite product updates make a great deal of sense in terms of the product’s strategic direction. In case you missed it, here’s the gist of the new features:
“Virtual meetings, remote collaboration, flexible hours: it’s becoming clear that these new ways of working are here to stay. In my conversations with customers and business leaders since the onset of COVID-19, I’ve seen workplace transformation go from an almost theoretical long-term goal to an urgent priority. Employers and workers want more flexible ways of working, and delivering on this requires the right technology.
…
That’s why today, we’re introducing a better home for work. G Suite now intelligently brings together the people, content, and tasks you need to make the most of your time. We’re integrating core tools like video, chat, email, files, and tasks, and making them better together, so that you can more easily stay on top of things, from anywhere.”
Note the explicit mention of “integrating core tools”, which I do think is meant to address the integration problem. However, integration by itself may not be sufficient — it merely takes G Suite to the same level as Office, not further. There is a greater theme at play here, one that derives from the unique strengths of working in the cloud.
What may be instructive is to first take a quick look at Slack and its competition against Microsoft and the Teams app specifically. You may remember that, when Teams was first introduced and offered for free as part of Office, it quickly overtook Slack in DAUs, despite being a materially worse service. Unfortunately, that’s how the cookie crumbles against a powerful monopoly — it’s a futile effort trying to be the only unique cog in an otherwise standardized ecosystem.
Slack Connect is the response, a new feature that allows users from different organizations to participate in the same channel. Thompson notes that, with Slack Connect, Slack has moved away from direct competition by living in another layer of the work stream: collaboration with third parties. Their ultimate aim is to do that particular subset of work chat well enough to justify a subscription on top of what is already available with Office.
This move clues us into a striking weakness within the integrated, modular Office strategy: the difficulty of collaborating with outsiders, especially with companies which might have very different Office setups, plugins, or services than yours. In contrast, Slack’s strengths are precisely that it lives in the cloud instead of on the operating system and is designed to abstract away from specific setups instead of custom implementation, providing a fairly uniform experience across different organizations. These strengths make it uniquely able to address the specific work chat use case of collaborating with outsiders.
Slack addresses the narrow use case of collaboration in work chat, but G Suite has a much bigger opportunity by applying this differentiation strategy to its whole service. It’s not enough to match the integration that Office already has, but to fully leverage just how much better-suited the cloud is for collaboration. What Google is now trying to deliver on is not just effective collaboration within each individual application, but rather, collaboration across the entire work stream. I see three potential benefits supporting this emphasis on vertically integrating collaboration in the cloud as the main theme of the G Suite experience:
1. Deepening a core competency:
Microsoft has been slowly and steadily catching up with SharePoint, but it is still fairly unpopular. Google is starting with incredible individual applications, and it has the opportunity to solidify its advantage by abstracting this competency to become a holistic experience.
2. Leveraging a better user experience:
It bears repeating that G Suite living in the cloud is critical in the quest to dethrone Office. A clear downside to Office is the fact that the software lives on the local operating system, meaning that some companies are still using Office versions from the early 2000s. While that’s an issue that Microsoft has continually worked on addressing, starting with the subscription model and forcing regular upgrades, the fact remains that software versions can be wildly different between companies, bringing with it all of the headaches and issues that that creates.
G Suite, on the other hand, never needs a user to perform time-consuming updates because all of its services are performed online — Google pushes an update to the backend with zero service disruption, and the user never needs to know when that happens. All users of G Suite are all on the same version of G Suite simultaneously. This has huge benefits for collaboration, the first being that one never has to worry about, for example, a third party spreadsheet that can’t be opened by your version of Excel because the spreadsheet is too old, or too new, or has too many foreign plugins. I imagine that in the case of the large companies, there may even be discrepancies between different departments.
3. Generating a flywheel:
Enhanced third party collaboration is an opportunity to spread the gospel of G Suite. Picture this: team A from company 1 works with team B from company 2, who insists on working inside G Suite. Team A is blown away by the efficacy of an enhanced G Suite, seeing how it can handle their entire workstream from calendars to task management to docs to email efficiency. If Team A and Team B become long term collaborators, team A is now reminded daily how much better G Suite is. Note that this effect is much weaker if the two teams only used Google Docs, or Sheets, because a good experience within an individual app doesn’t justify changing the entire infrastructure.
The issue we run into is that switching from Office to G Suite is a massive ask, but with enough touchpoints between company 1 and other companies that use G Suite, demand could eventually reach a tipping point. Once this happens to enough companies, it’s not hard to see growth explode from there: we’ve seen the amazing flywheels of effective collaboration tools like Zoom and Slack.
In summary, up until now, G Suite suffered from two weaknesses: a lack of vertical integration and perceived weakness in raw utility (despite its better design).
To counteract these weaknesses, Google is betting that better vertical integration based on a laser-sharp focus on easing collaboration both internally and externally can move the needle enough companies to switch from Office to Google, and thus, act as a catalyst of growth for G Suite. They directly address the first weakness, and play up the unique strengths of the cloud to cover-up for the second one. I think that these new feature are all great starting points, but they feel like mostly quality of life adjustments to make existing workflows easier. Google should continue doubling down on more dynamic and core features related to collaborating across G Suite as a whole, and really evolve it into a hub for integrating all different parts of managing daily workflow and project work.
A final note on this analysis is that, while I focus on collaboration as a winning theme for G Suite, Javier also mentions briefly Smart Compose (sentence prediction when composing emails) as a compelling piece of Gmail. AI capabilities in managing a project’s workflow and augmenting productivity is certainly area of innovation that happens more agilely in the cloud. I also think especially of the numerous bots that live on G Suite, and how they could be better incorporated into selling the service’s AI capabilities. But that is another discussion to be had in the future.
For now, I’m eager to whether this is the strategic direction that will allow G Suite to bypass the Office moat that has defeated so many others.
