The new phase of the Microsoft-Google rivalry: AI and the cloud

As it often does, Big Tech is stealing the show on Wall Street this week. Two companies, each worth well more than $1 trillion, showed their quarterly earnings: Alphabet, aka the megacorporation formerly known as Google, and Microsoft, aka the megacorporation formerly known as the company that brought you the Zune.

And while Alphabet reported $77 billion in revenue from the three months gone by, Wall Street was none too pleased. More important to investors was the 29% revenue jump Microsoft saw in its cloud computing division, which is very much tied to its artificial intelligence plans.

Google and Microsoft have been rivals for a while now, and lately, Microsoft has been on the offensive.

Back in the early 2010s, Microsoft launched an anti-Google ad campaign called Scroogled. It didn’t work.

Once the scrappy upstart, Google grew to own an estimated 90% of the web search market. It then used those ad dollars to threaten Microsoft’s Office franchise with free products like Google Docs and Google Sheets.

So amid the ChatGPT phenomenon, in which Microsoft is an investor, the software giant has one word on its mind: “Revenge,” said Ken Gawrelski, a tech analyst for Wells Fargo.

“Microsoft relishes its position as the challenger. For many years, it faced the scrutiny of being the leader,” Gawrelski said.

Back in the late ’90s, Microsoft was the tech behemoth facing an antitrust lawsuit from the federal government. This hurt its ability to invest in other businesses — it was Google that was acquiring startups like YouTube and Waze. 

But starting a few years ago, “we’ve seen kind of a role reversal,” said Scott Kessler at investment research firm Third Bridge. “Alphabet was more the subject of this legal and regulatory scrutiny.”

So Google scaled back on the acquisitions. 

Meanwhile, in 2019, Microsoft struck a deal with OpenAI, the maker of ChatGPT, which is now integrated into Bing, the Microsoft search engine.

“The partnership with OpenAI has given them a huge advantage. They are leading the pack in revenue, mindshare and market share,” said Brent Thill with the investment firm Jefferies.

Even beyond AI, Microsoft has more diversified revenue streams than Google does. The Windows operating system, obviously. Microsoft Office, video games. …

But Thill said no one should count Google out.

“Talk to anyone in the AI industry, and they’ll say the biggest vendor they fear the most is Google,” Thill said, adding that Google just hasn’t figured out a way to make money from its AI … yet.