Microsoft Corporation vs. Google Inc: Satya Nadella Steps Up the Battle

Microsoft and Google have never been friends.

Microsoft tried to take on the search leader in its core business with Bing, while Google has attacked two core Microsoft products in recent years. First, it developed a suite of free apps similar to Office. Then, it created the Android and Chrome operating systems to win market share from Windows.

In the past, Microsoft has been slow to respond to these efforts. That appears to have changed, however, under new CEO Satya Nadella who has responded swiftly to challenges.

This used to be a war where, aside from Bing, Microsoft simply took shots rather than giving them. Now, after about a year in office, Nadella has changed the culture of his entire company. That alone may not lead to a Microsoft victory, but at least the company has gone on the offensive.

Cheap Windows 8 tablets and phones

Google has managed to win 45.9% of mobile and tablet market share in December with devices running its Android operating system, according to . Windows does not even make the list, meaning the percentage of people using Windows tablets is lumped into the other category which accounted for just 0.7% market share. Windows Phone does a little better with 2.3%, but it's clear Android, which runs on a slew of cheap devices from a variety of manufacturers, is winning this battle.

In an attempt to take back market share, Microsoft has made Windows 8 free for all devices under nine inches from OEM partners. The company also offers its partners Microsoft Windows 8.1 with Bing, which comes with a free year of Office 365 Personal, according to ZDNet .

The goal of giving away Windows 8 and a year of Office was to entice partners to make Windows 8 tablets at prices which rival those of Android devices. Microsoft believes, as do I, that people only picked Android for its lower price point compared to the Apple iPad and, until recently, it was also cheaper than a tablet running Windows.

Though too early to tell if that line of reasoning proves out, Hewlett-Packard , Dell, and ASUS now all have sub-$200 tablets for sale at Microsoft's online and retail stores. HP even offers the Stream 7, with the free Office deal, for just $99.

On the phone side, Microsoft has taken matters into its own hands releasing a number of low-cost Windows 8 phones in its Lumia line . The company has also been working with BLU , a relatively new player in the industry, to produce sub-$150 Windows phones.

The Lumia 532 is an attempt by Microsoft to take share from Android. Source: Microsoft

Cheap Windows 8 PCs and laptops

While Google has been winning tablet and phone customers with Android, the company has also been taking away market share at the bottom of the PC market with its Chromebook laptop devices. So far, the results have been modest with Gartner predicting that a little over 5 million units sold in 2014 which should climb to 14 million in 2015.

That may be a small fraction of the 300 million plus desktops and laptops sold each year , but it's enough to make Microsoft take notice. Perhaps more important than the number of Chromebooks being sold is that Google has said it's approaching a 50% share in the education market.

Those dwindling sales to schools could create sort of a double jeopardy for Microsoft. If a generation grows up with Chromebooks in school, they are much more likely to continue using them in the future.

The same argument has been made for Apple products -- since Apple has always been Microsoft's key rival in education -- but Apple computers are expensive. The high cost of a Mac may have sent generations of kids who used Apple computers in school to cheaper Windows alternatives after graduation. Microsoft no longer had that pricing advantage over Chromebooks, so Nadella knew he needed cheaper PCs to sell to schools and others who would be tempted to try a Chromebook.

That happened in late 2014 as well with HP and Asus selling Windows laptops in the $199 to $229 range. HP also announced a sub-$200 Windows desktop at the Consumer Electronics show.

Those devices happened, at least partially, because Nadella worked aggressively to lower the OEM cost for Windows 8.

Is it too late for Microsoft?

What's unknown for Microsoft is whether it waited too long to create low-cost tablets and PCs. If the company had moved sooner, it may have kept Google from even entering these markets, but the past can't be changed.

It's hard to argue in favor of Chromebooks or Android tablets compared to devices running Windows 8 with Office. Admittedly, I'm a bit biased having grown up with PCs and Macs as the standard, but my sub-$200 HP Stream Windows 8 laptop and HP Stream 8 tablet are more versatile than any Chromebook (and I have tested a few) or Android tablet. And though Google's productivity apps are free and well-made, Word and Excel remain the gold standard.

Nadella has at least given his company a fighting chance. Whereas it used to be dying a thousand tiny deaths as Google and Apple sucked away its users, now it has the product lineup to compete.

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Daniel Kline owns shares of Apple and Microsoft. He also owns more devices than any person needs. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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