Yes. A number of the senior people I know at Microsoft are obsessed with Google. MSN – which is a very large business – is a direct competitor. Live – which has many “Google knock off” features – is a direct attack. And much of the Microsoft infrastructure R&D is aimed directly at the same business.

Microsoft competes with many companies—Apple, Sony, IBM, the open source movement, etc. — on various product / service lines. Google and Yahoo continue to be Microsoft’s prime competitors in online services. Google took the lead with search and leveraged its reach to introduce a whole array of online tools: personal calendars, word processors, spreadsheets, etc.

Microsoft’s biggest ‘cash cows’ are its Windows and Office product lines. Google’s Docs (Writley) and Spreadsheets services constitute disruptive technologies—simple and affordable services that threaten the substantial profit margins that Microsoft derives from its Office products.

Online services represent a fundamental shift in the software business. Traditionally, desktop applications have resided on user’s computers. End-users were required to update these applications frequently, whenever a new release was available from Microsoft. With Google offering online word processing and spreadsheets, these applications now reside on a Google’s server. This allows the end-user to invest in a decent computer, operating system and fast, reliable internet access and avoid frequent updates, crashes, and related expenses.

Releasing new features, maintaining /updating the application, and ensuring application reliability on the server are now Google’s responsibility. This clearly erodes opportunities for both of Microsoft’s core businesses (Windows and Office). I think that online applications will have a limited market-reach and will not obsolete all PC-based products in the next decade or so. Clearly, Google’s initiatives in online services and market share in search/content/information are cause for worry at Microsoft.