• Silicon Alley Insider, Wednesday, May 14, 2008 11 AM

If you've ever wondered why Microsoft, with its $277 billion market cap, is so worried about Google, Silicon Alley Insider's Henry Blodget has some interesting statistics to show you. By early next year, he said that Google's search business (excluding contextual revenue from AdSense) will surpass that of Microsoft's Windows.

Of course, when you add Office (Microsoft's other massive monopoly that usually comes bundled with Windows) to the equation, that gap remains large. According to SAI, Google did around $3.5 billion in search revenue in the first quarter compared to almost $9 billion for Windows and Office combined. It would have been more interesting to see the revenue total for Google Search and AdSense weighed against the Microsoft duopoly, but the point that Google's monopolistic moneymaker is catching up to Microsoft's is still clear.

Why is this happening? As Blodget said, both products (that is, search and operating systems) are natural monopolies, which means Google's search share should continue to rise until it reaches Microsoft's solid domination (90%+) of the operating system market. These are also "fantastically profitable" products, with operating margins of over 75%. But the big upper hand goes to Google because its monopoly is growing faster than Microsoft's. Meanwhile, the software giant has been trying and failing to grow a Web business since about four years before Google was even born. That's what has the software giant is so worried.

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