Two tech giants are Microsoft and Google.  The former has been around for over 30 years.  The latter about a decade.  Which is the company you should work for, or invest in?  The one that has demonstrated a long history and great record of earnings, or the newer one participating in new markets still not well understood with a slew of new – but largely unproven – products?  You might think the older one is less risky, and feel more comfortable backing.

But we know that Microsoft is losing market share, especially in growing markets.  Although its products have been dominant, the market for those products (personal computers used as servers, desktop machines and laptops) has seen substantial slowing.  New solutions are emerging that compete directly with Microsoft (new operating systems like Linux and others) and compete indirectly (cloud computing and thin applications on mobile devices.) 

Source:  Silicon Alley Insider

In just 18 months Microsoft Internet Explorer has lost 13 market share points – dropping from 68% of the market to 55%.  Almost all of that has gone to Safari (Macintosh) and Google Chrome.  Chrome has risen from nothing to 7% of the market.  And since internet usage is growing, while desktop usage is shrinking, this is the "leading edge" of the market.

Also, the Chrome operating system will be launching later in 2010.  It also will go directly after the "Windows" franchise which had a very unexciting launch of System 7 in 2009. 

Let's look at valuation:  First Microsoft – which has gone basically sideways.  Huge peak to trough, but overall not much gain for investors despite launching two major upgrades during the period (Vista and System 7 as well as Office 2007).  Obviously, upgrade products have produced very little growth for Microsoft, or its valuation.

Now we can look at Google. Google investors have doubled their money, while employment has grown.  All those new products have helped Google to grow, and investors have an optimistic view of future growth.

Do you make decisions looking in the rear view mirror, or out the windshield?  It can be tempting to be influenced by a great past. But that really isn't relevant.  What's important is the future.  And we can see that Microsoft, which keeps trying to Defend & Extend what it knows is rapidly falling behind the market changer, Google, which is rapidly moving toward where markets are heading.

D&E Management never creates growth.  By trying to recapture the past, new market moves are missed and growth opportunities lost.  Companies have to move forward, with new products, into new markets.  And if you have any doubt, just compare the results of Defend & Extend Management at Microsoft the last 5 years with Phoenix Principle management using White Space at Google.