While You Were Watching Google

by: George Bounacos Tuesday, July 21st, 2009

SAN FRANCISCO - FEBRUARY 15, 2005: (FILE) Mic...

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I spend a lot of time at George Mason University for someone who doesn’t teach or attend the school. I’m an alum, but I visit now to either pop into a friendly professor’s class and spread the evils of marketing to impressionable minds or as a judge in the School of Management’s case study competition.

While judging the latter in a small class this month, I asked the same question of each group that was posing as consultants to a Fortune 500 company.

What was our profit last year?

The groups didn’t know, confused revenue with profit (a great coaching moment) or in one especially sad case, insisted that the “entire industry” was $187 trillion. Yes, with a “t”. They were prompted to check the number, but confidently insisted the number was trillion.

There are stories of me as a college student too so I understand.

And students can mix their -illions because adults continue bemoaning Google‘s growth while ignoring Microsoft.

Google receives the majority of North American search queries. Google also rolls out new ventures right out of the Ready-Fire-Aim playbook. But as we crown Google and write about its search and advertising dominance, its still unproven forays into health, operating systems, telephony and more, I just have one question:

Has anyone looked at Microsoft’s profit lately?

Even financial pundits are writing off Redmond for an anticipated year-over-year decline in fourth quarter earnings announcement due any day. Until 2008-2009′s “Worst Financial Crisis Ever [except for 1987 and 1973 and that Great Depression thing]“, Microsoft consistently posted profit of more than $4 billion every quarter. Those of you scoring at home will note that the company generates profit — not revenue — of more than one billion dollars every month.

Profit slumped in 2009 and looks to decline again in Q4. But compare the two companies before crowning royalty. First, let’s agree that 2009, the year that saw government bailouts and the destruction of many household names, isn’t on the table. We’ll go back to the end of 2008, when our current economic crisis was in full swing.

Google posted great growth numbers. Gross profit rose every year from around $3 billion in 2005 to more than $13 billion in 2008. As any good company in hypergrowth does, Google continually reinvested and still created net income of $4 billion in 2007 and 2008.

Or as we say in my family, Google earned as much in 2007 and again in 2008 as Microsoft did in any 3 month period during that time.

Laugh about Vista or say that Wii won the hearts and minds of console gamers or that Google Apps and SaaS spell the death of Microsoft. But remember that the company you dismiss continues throwing off profit that dwarfs many industries.

Another sound bite for you: between 2007 and 2008, Google earned about $8.5 billion while Microsoft earned double that in 2008 alone.

Pundits and other navel gazers ignore Microsoft at their peril. The company surely needs new cash cows. The on-again deal for Yahoo! may fall through once more. Even if Microsoft buys Yahoo!’s search business, Google will still hold a 3 to 1 margin in the free search market.

We teach business students that corporations exist to create profit and thus shareholder value. By that measure, Google isn’t in Microsoft’s class yet. And any company that can throw billions at R&D or M&A while retaining more profit than its competitors is a company profit-focused marketers should be watching.