Basic business strategy says that in a mature business incumbents are hard to beat.

Oracle and IBM dominate the enterprise database markets.  SAP dominates the ERP business. Apple dominates in smartphones and tablets. Facebook dominates the social media world. Google initiated or dominated web search, video broadcast and web analytics early and continues to lead in each of these areas. Others have entered those businesses subsequently but even when their products become functionally equivalent it’s hard to get customers to switch.  

When it comes to business tools however, Google and other potential entrants have met their match taking on Microsoft Excel. The reason is simple: Excel is the language that business speaks. (Excel is a component of the Microsoft Office suite which also includes other applications such as Word, PowerPoint and Outlook.  Strong arguments can also be made for the market dominance of each of those products, but for the purposes of this post I’m going to focus on Excel.)  

Take our company, T4G Limited, for example. We are a thriving mid-sized Canadian IT services firm with access to more sophisticated IT systems than most companies our size, but the one tool we couldn’t live without is Microsoft Excel.  A quick query shows literally thousands of individual Excel spreadsheets on our servers right now. 

As businesses look to explore the uncharted territory that comes with the big data view of the world, it’s fortunate that a familiar tool is available as a guide.

Then look at the big boys in Canada, never mind the U.S. and other huge economies. The Royal Bank of Canada, for example, is the largest company in Canada (ranked by profits) with assets approaching a cool three-quarter of a trillion dollars. More than 70,000 employees work at the bank and when they’re doing budgeting, planning, forecasting, risk management, data visualization and the myriad of other activities that knowledge workers undertake each day, Microsoft Excel is their tool.  If T4G is using thousands of Excel spreadsheets to run our business how many is the Royal Bank using?  Now extend that argument to include every significant business in Canada and ask yourself what’ the value of that intellectual property? Billions of dollars?  Certainly. Trillions? Maybe.

Since Excel beat out Lotus 1-2-3 last millennia, it’s been the go to application on the business desktop for companies large and small. If you’re an accounting clerk, a bookkeeper or have a professional accounting certification, you speak Excel.  A generation of business students (both undergraduate and graduate) have grown up with and use the application every day.  

Excel is clearly an exceptionally important product today.  It’s also clear that the importance of data in decision making is going to continue to grow, and that Excel is the interface between the minds of analysts and the data they need to understand. Microsoft recognizes this, and has been hard at work future-proofing their product—above and beyond making it web-accessible.  New capabilities such as PowerPivot and Power View enable users to better integrate with a growing collection of external (web) information sources and more easily utilize and visually interact with information.   As businesses look to explore the uncharted territory that comes with the big data view of the world, it’s fortunate that a familiar tool is available as a guide.

Enter Google Docs.  Google is looking to replicate its success in the search market with their online-accessible office suite, Google Docs. Unfortunately for Google, the cards are stacked against it replicating that success in the office space. 

Google has created a functional competitor to Microsoft Office with many (although not all) features of the Microsoft products.  As it stands, for businesses looking to take their office suite into the cloud (and setting aside any regulatory, risk or privacy issues) Google’s solution has one advantage: it’s less expensive.  How much less expensive is a hard question to answer.  Both Microsoft and Google have different price alternatives but let’s say we compare what a company like T4G would have to pay.  The Google Docs price is $50 annually and the Microsoft alternative (Office 365) is $6 per month or $72 annually.  

But in a world where Google Docs can merely replace most of the functionality of Excel (and Word, and PowerPoint), how many firms are going to disrupt the day to day work of the business in order to install and have every employee learn an entirely new suite of tools in order to save a dollar or two a month.  Keep in mind that many of the employees tracking financials are some of the most handsomely rewarded, and the accuracy and quality of their work is tied directly to the performance of the business. There’s simply too much trust and productivity with the existing product to make the switch. 

This argument is what business academics call switching costs: companies have been using Excel for so long that the costs of switching to a competing product aren’t favourable. This is true, but also misses a crucial point. In order to really be competitive with Excel, Google Docs needs to copy its features almost exactly: after all, without Excel compatibility a switch would be a non-starter.   From this it follows that after years of development the absolute best that Google Docs can hope to be is a functional clone of Excel and even this will be difficult given the added functionality that Microsoft continues to develop.  

For companies large and small, in Canada and around the world, Microsoft Excel is the language that business speaks.  Business history tells us that it’s very difficult to oust an entrenched competitor even when you come to market with a superior product.  When you try to do it by copying the functionality of last generations incumbent it’s virtually impossible.