A visiting blogger, Jesse Chan, recently left a comment on a posting about Google, so I visited his site, which has a whole series of postings about Google, including one that speculates on when Google will overtake Microsoft (by value). After Google IPOed, Jesse predicted it would overtake Microsoft within 5 year – by August 2009. It was a good call – and now, I’m inclined to believe it will happen earlier.

Here’s why:

• Google is about as profitable as Microsoft. Taking current figures Microsoft has revenues of $51bn and net profits at 27.5%, Google has revenues of $10.6bn and net profits of 29%. Not much difference in profits but a big difference in revenues.
• Microsoft’s revenues are growing at 15.4% and Google’s are growing at 73%. If Google continues to grow at that rate then it will overtake Microsoft in terms of revenue in about 4 to 5 years. That, by the way, is what Google’s share price is telling you. Google’s market cap is about 60% of Microsoft’s.
• Google’s revenue growth comes from 2 factors. First is that it is outdistancing the competition. Every year Microsoft announces that it is investing heavily in search and will close the gap on Google. Every year the gap seems to get wider – both Yahoo and Microsoft fall further behind Google. Google’s technology lead is, arguably, increasing. It’s market lead is clearly increasing.
• Secondly, Google’s growth has been greater than the growth in Internet advertising revenues. However, even if it only kept in step with that growth, it would achieve very high double digit growth. Internet advertising is expected to rise by 50 to 70 percent next year.
• Google is now moving into mobile advertising. It has a huge advantage in this area because it has almost all the assets it needs to deploy ads on mobile devices. For Google, the opening of the mobile world to advertising is a whole new market, which sits on top of the Internet. Revenues from mobile will, imho, eventually overtake revenues from Internet advertising. Why? Because mobile advertising will be location based. It is “on the spot”.

Consider all of this and it’s difficult to think of a near term or medium term scenario where Google’s momentum slows. Microsoft, however, is vulnerable to revenue stagnation. It’s growth rate may persist, but it is less certain, because both Windows and Office are now under competitive pressure – and they are the jewels in the crown.