Vivek Kundra, recruited to Washington to overhaul city computer networks plagued by cost overruns and viruses, treats his projects like stocks. The biggest “buy” on his trading floor is Google Inc.
The city’s 34-year-old technology chief signed a contract worth almost $500,000 a year in June for all 38,000 municipal employees to use Google’s e-mail, spreadsheet and word-processing programs, giving them an Internet-based alternative to Microsoft Corp.’s Office software installed on computers. Accountants, teachers and firefighters use Google to set budgets, track truancy rates and map emergency routes.
Orders such as Mr. Kundra’s show that Google is cracking Microsoft’s hold in the business-software market as the Internet company seeks to diversify beyond the ads that contribute 97 percent of revenue. While Microsoft gets $19 billion in annual sales from applications such as Office and beat back a challenge for Procter & Gamble Co.’s business this year, the District provides a glimpse of how Google, based in Mountain View, Calif., is gaining ground.
“If Google keeps getting big customers like the District of Columbia, that’s a lot of licenses Microsoft is going to lose,” said Jeffrey Lindsay, an analyst at Sanford C. Bernstein & Co. in New York. “This will be a huge signal to the business community that this product is being fairly rigorously vetted.”
Customers use a Web browser to access Google Apps, which includes an online word processor, spreadsheets, presentation and e-mail software. The programs and users’ files are stored on Google’s servers, while most Microsoft programs are installed on individual computers on office desks.
Google has to persuade businesses to switch from software that their employees already know how to use and reassure them that data is safely stored on Google’s machines. While Google says its approach makes it easier to manage the programs, they have fewer features and don’t work if there’s no Internet connection.
Even winning Mr. Kundra’s business hints at the challenges. The revenue from it pales in comparison to the $16.6 billion in sales Google brought in last year, almost entirely from ads that appear next to Web-search results. And the work force in the District can also still use Microsoft Office.
“Microsoft is entrenched,” said Scott Kessler, an equity analyst at Standard & Poor’s in New York. “Microsoft isn’t going to lose market share to Google anytime soon. It’s going to take some time, and Google is fully aware of that.”
Google Apps may become increasingly important amid concern that ad sales could dry up. Half of the 500,000 business customers that use it get the free version that is funded by advertising. Others pay as much as $50 for each employee annually for a version with no ads, more file storage, customer support and enhanced security. Clients are mostly smaller businesses and universities, and 3,000 more sign up each day.
“We have to focus our efforts on people like Vivek, who want to be at the forefront,” said Dave Girouard, Google’s president of enterprise.
Mr. Kundra, formerly an executive at two start-up companies, is betting on Google to help mend the District’s technology woes. When he took the D.C. post 17 months ago, he found that 85 percent of school computers had viruses. The city government’s fiber-optic network cost $6.3 million more than planned last year, and police computers had less power than laptops used by students in coffee shops.
Mr. Kundra responded by creating a stock marketlike trading floor in his 700-person department. Projects get rated “buy,” “sell,” or “hold,” based on whether they meet deadlines and financial goals, as well as targets for employee turnover and customer feedback. Teams produce quarterly reports, just like company earnings.
Leaders from cities, states and countries have sought advice on using Google to run projects like a stock portfolio, Mr. Kundra said. He and Mr. Girouard demonstrated it for officials at the Democratic National Convention in Denver in August.
Microsoft, whose $23.7 billion in cash and short-term investments was almost double Google’s $12.7 billion in June, is building more data centers and adding features that let people store and share information over the Web.
“We look at Google as yet another feisty competitor,” said Keith Hodson, a spokesman for Redmond, Wash.-based Microsoft. Google’s D.C. contract isn’t a loss because the city and school district have multiyear agreements to use Windows and Office, Mr. Hodson said.
Still, Washington’s Google users are finding new ways to work together, which may compel more people to switch, said Michael Nelson, who studies the future of the Internet as a visiting professor at Georgetown University in Washington.
“If you give people the right tools and the opportunities to use them, some pretty creative things can happen,” he said. “That’s starting to happen with the D.C. government.”
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