The Wall Street Journal (and everyone else) is reporting (subscription required)

Google Inc. is venturing deeper into the business and education market by bundling a variety of existing services including email and scheduling offerings that compete with software from Microsoft Corp.

Oh, And I Can Kill You With My Brain
This is one of those sound and fury signifying very little announcements, which is probably why the Googsters sent it out on a very slow August Monday the week before Labor Day. Oo-o-oh, Googzilla vs Micrcosofthra! Battle of the Century! Decade? Year? Weekend? Uh-huh. Cybernetic smackdown! Maybe.

Googzilla marketing folks are pretty clueless (see Time For Google Layoffs – Starting With Eric). There is no Master Plan. Googzilla is throwing stuff as fast as it can – which is impressively fast! – and seeing what sticks – which is surprisingly little. If they didn’t have so many billions that they risk being regulated as an investment company no one would give a single darn in heck about their non-search efforts.

Tell Me Something Good
Information Week’s Aaron Ricadela’s must-read does a great job exploring the competitive issues. My favorite:

Instead of trying to displace the hundreds of millions of copies of Office installed on business PCs, Google will try to snare users once they start sharing the Word and Excel files they’ve created. “The right way to view Writely and Google Spreadsheets, especially in the context of a larger business, isn’t necessarily as a replacement for Word or Excel,” says Matt Glotzbach, head of enterprise products at Google. “They’re the collaboration component of that.”

Horsepucky. Given a choice between sending sensitive corporate data off to Google’s “We Read & Remember Everything” data centers and keeping it inside the corporate firewalls, who can doubt that enterprise IT will keep it all in-house? Is Googzilla showing the slightest sign of altering their guaranteed-to-fail strategy of reading and keeping everything, making them the most valuable target on the internet for everyone from criminals to prosecutors?

I’ve Swallowed A Bug
The real importance of this accouncement is that it will penetrate the consciousness of our none-to-creative (an observation, not criticism) managerial class that maybe, just maybe, there is an alternative to Microsoft Office. The thought that something may have changed will never go away. Googzilla won’t be the beneficiary of that nagging thought, yet someone, who we’ve never heard of, will be.

The Real Threat To Microsoft
By making collaboration “free” (ok, ad-supported) Google hands Microsoft customers a powerful bargaining chip. “Gee, Ms. Friendly Microsofthra Sales Rep, why should I spend oodles for Office 2007 collaboration features when Googzilla will give it to me for free? Huh?” And this: “Golly, Ms. FMSR, we’re so excited about collaboration that we’re running two pilot projects! And don’t worry, I’m sure Microsofthra’s will do fine!”

Never having faced much competition, Microsofthra can be counted on to react badly, worsening their own troubles. Yet if the history of technology markets tells us anything, it is that once a market matures, it is exceedingly rare for the market leader to be knocked off. So Microsofthra will continue to own the desktop productivity suite space. And if Googzilla sticks to improving its search, they will continue to own that as well.

So is Googzilla trapped? No, not if they are creative on the marketing side. For example, what if Googzilla put those collaboration apps on its Google Enterprise inside-the-firewall appliances for a “business theater” sum of $3 per employee? Everyone knows most employees use maybe 10% of Office features, and all of a sudden CFO’s everywhere would have the kind of question for CIOs that they love to ask: “Why are we spending $150 per employee for Office, when we could be giving the huge majority of our employees similar functionality for $3?”

Googzilla vs Microsofthra: I Put My Money on the Big M
Has Googzilla broken the code for winning a chunk of the $12B annual office business? No.

Have they figured out how to turn Office into an $8B business? Perhaps.

The larger question is, have they figured out how to use the incredible economic advantages of their GooFS-based Internet Data Center to keep growing and making scads of money? No. And that is their real problem.

Microsofthra will continue to be large and highly profitable. They can afford to wait and swipe what works from the real innovators, Google or anyone else. That is GOOG’s challenge: to stake out a new and highly profitable niche other than search so they can also continue to be large and highly profitable. Playing a waiting game, as Captain Reynolds says, “‘. . . ain’t exactly Plan A.” But it beats making a Netscape-like swan dive into oblivion.

Update Over at Silicon Valley Watcher Tom points out that Reuters reports that Google will also be offering a subscription version of GAYD. Which changes almost nothing – until Google makes some serious effort to assure customer privacy and security.