Microsoft vs. Google: Is it a real fight?

I think it would be fair to say that there seem to be a competition going on between Microsoft and Google. It’s ridiculous to deny it since Microsoft is making all of those moves to compete with Google (Enhancing Windows Search, Ballmer announcing that 25% of Microsoft revenues would come from advertising, acquisition of aQuantive for 6B$, and offer to buy Yahoo! for more than 44B$). Even though the two companies doesn’t share much of battlegrounds (search and online advertising, which both represent a fraction of Microsoft revenues), The two companies - especially Microsoft - seem to be more concerned with one another more and more. Why is that?

1. A few years back when Google was on the rise, the question "How can stop Google?" was naturally followed by "Could it be Microsoft?". The collision of the two powers is a natural course of events, and Microsoft is thinking "let’s do it now before Google gets too big to handle".

2. Google expanding its products to provide cheap (free is cheap, right?) only-core-widely-used-features everywhere-accessible alternatives to Microsoft products (for example, Google Docs vs Office) is threatening Microsoft future revenues. It kinda feels like Netscape replacing windows all over again. Microsoft is thinking "It’s not about generating more profit, it’s a matter of national security".

3. The business model offered by Google, a company offering free products that makes millions of dollars, is more effective than Microsoft traditional-software-company business model. Microsoft is thinking "Adopt it or beat it, or maybe adopt it and beat everybody else".

4. Google’s products are the closest thing to Microsoft’s Software-as-a-Service licensing model that was supposed to replace the traditional license model currently used. Microsoft is probably thinking "Those Google guys stole my idea and they’re making money of it, I’ll #&jlk%fn&h!i* them".

5. Online advertising is generating more profit everyday. Microsoft is thinking "Why not get a bigger piece of the pie".

Well, we’ve established that there is a fight. But how real is it?

• Microsoft can avoid the "If Google is winning, then we must be losing" attitude which seem be driving the company lately, like the Microhoo merger that will take at least a year to be active because of all the in-house arrangements that has to happen. Stopping that attitude will make the fight look much less intense.
• Microsoft should take a moment and re-plan its online strategy, at least to avoid all the redundant services (for example, Folder Share, SkyDrive, and Live Mesh). This might give Microsoft’s effort in online services a chance to compete with Google in that area.
• Even though online advertising is driving Google’s revenues, Google’s services is what’s threatening Microsoft. And while it’s a good strategy to directly compete in online advertising which will dry Google funds for building those services, it’s still sufficient to build better services - or software - to limit Google services’ affect on Microsoft revenues.

How real is the fight, if someone came out on top.. then, it’s real.