Business - Google hopes to take on Microsoft using resellers

Yinka Adegoke

NEW YORK (Reuters) – Web search leader Google Inc took another step on Wednesday toward direct competition with Microsoft Corp by recruiting IT resellers to market its Web-based applications to business clients.

From the end of March, authorized resellers will be able to sell, customize and support premium versions of Google Apps, which includes word processing, spreadsheets, calendars and email.

Google Apps is broadly similar to Microsoft's top-selling Office package except that Apps is completely Web-based and is part of Google's push into so called 'cloud computing' or software-as-a-service. Microsoft said in October it is also looking at adding Web-based features for its Office applications.

Since it launched Google Apps in February 2007, Google has only sold directly to business users over the Web. Analysts said the move to work with third parties is necessary if Google hopes to compete seriously with Microsoft or IBM.

Microsoft, which is the world's largest software company, sells more than 95 percent of its software through more than 440,000 third party resellers, according to Gartner Research, and intends to spend around $3 billion on managing those sales channels in 2009.

By comparison Google has so far only dipped its toe in the water, but sees a great opportunity after running trials with more than 50 resellers in 25 countries. It also has a 9-month old relationship with Salesforce.com Inc.

"We feel that Google has had limited success in winning customers with a singular sales channel," said Tiffani Bova, an analyst at Gartner Research, who estimates Google has around 200,000 Premier customers.

IT resellers typically sell services such as Web hosting, setting up servers and backing up data, as well as software to hundreds of thousands of end user businesses of all sizes.

"This is a chance for those types of companies to get into the cloud computing revolution," said Dave Girouard, president of enterprise at Google.

To win over new resellers, Google said partners will buy the Premier Edition at a 20 percent discount and keep the recurring revenue for the lifetime of their customer relationship.

The search leader already offers a basic package of Google Apps for free to consumers, prompting some industry watchers to see it as a major threat to Microsoft's profitable "Office" business.

But Rebecca Wettemann, an analyst at Nucleus Research, said Google is a long way from hurting Microsoft.

"We've seen in the applications space that Google is a strong email competitor, but so far it is only a complement to Office -- not yet a replacement," she said.

Google's move to offer applications is part of a wider drive to diversify its revenue base, which has been completely dominated by hugely profitable search advertising technology.

As the advertising market comes under pressure from a slowing global economy, investors will likely be paying more attention to Google's small but growing businesses.

(Editing by Andre Grenon)