Court battle sheds light on Microsoft's worries over Google challenge

Until recently, a battle between Google and Microsoft would have been characterised by many as a fight between David and Goliath.

But a high-profile lawsuit which began in July over a senior executive who defected from Microsoft to Google demonstrates that Bill Gates' technology giant is no longer relaxed about its smaller internet search-focused counterpart.

Court documents released last week, before yesterday's court hearing in Seattle, demonstrate quite how rattled Microsoft is by Google's rapid growth.

Steve Ballmer, Microsoft's chief executive, allegedly declared he was going to "fucking kill Google" and to "fucking bury" Eric Schmidt, its chief executive, when he learned that Mark Lucovsky, a key engineer who helped build Microsoft's Windows programme, was departing for the younger, California-based company.

The outburst has been revealed as part of the dispute over another senior former Microsoft executive, Kai-Fu Lee, who quit to join Google. Microsoft is suing him and Google on the grounds that his move breaches a one-year, non-compete agreement the executive signed with his former employer. Google is counter-suing, saying Microsoft's case is a "shocking display of hubris" designed to "scare other Microsoft employees into remaining at the company". At yesterday's hearing, Microsoft asked the judge to ban Mr Lee from starting his new job establishing a research centre for Google in China's rapidly developing technology market until the full case is heard in January. In a statement released on Friday, Mr Ballmer said Mr Lucovsky's account, which included the observation that his boss threw a chair across the room, was a "gross exaggeration".

If the case reveals a new sense of hysteria at Microsoft, which was once characterised as the "evil empire" because of its monopolistic grip on the technology world, it also shows Google in a new light.

When Google floated on the stock market a year ago, it made its motto "do no evil" and offered perks such as free yoga and allowing employees to bring pets to work. These days, its working culture may still be still similar to a college campus but, critics say, its business ambitions seem to be little short of global domination. Google seems to be pursuing its ends in increasingly aggressive ways.

Statements relating to the case over Mr Lee include an e-mail from Jonathan Rosenberg, Google's director of business development, saying the company should pursue the Taiwan-born technology expert "like wolves".

The company is also causing consternation in Silicon Valley, where Google is gobbling up the top talent among PhD graduates and has pushed up the salary of computer engineers by about 25 per cent. Smaller rivals complain that when they approach venture capitalists with a new idea, the response is often negative because of the feeling that Google could go into the same area and wipe out any competition.

This year, Mr Schmidt put his company's ambitions in a bald way, saying: "When we talk about organising all of the world's information, we mean all." That translates into a business which, seven years after it was set up by the Stanford PhD graduates Sergey Brin and Larry Page, is breathtaking in its reach.

Google controls 55 per cent of the internet search market in the US and more than half of the market globally, where it is growing particularly rapidly compared with competitors. The company has been rapidly adding more advanced types of search, such as allowing users to scan aerial maps.

All of these extra services dramatically add to its potential for revenues, according to Mark Mahaney, at Citigroup Smith Barney. "One of the most persistent bear arguments on Google is that it is a one-trick internet search pony. What has become increasingly clear over the past 12 months is that Google's search solutions have already moved beyond 'traditional' internet text search results," he said.

What is worrying Microsoft and other companies is that Google wants to use its dominance in internet search as a springboard to becoming a one-stop shop, offering everything from telephone services to computer software applications which could marginalise even the mighty Microsoft. Last month it launched a service allowing customers to use the internet to make phone calls. Google Talk encroaches on phone companies and specialists operating in the fast-growing area of voice-over-internet protocol.

Google has also made serious inroads into the world of advertising broking. Its highly popular AdSense service allows other online companies to use its search engine and in return, the two share advertising fees.

Google is even trying its hand at traditional advertising in newspapers and magazines, buying space in IT-focused publications such as PC Magazine and charging advertisers a fee. The ad shows that it has been placed by Google, which is intended to be part of the pull for advertisers.

But where the battle is likely to be fiercestrelates to Google's decision to develop products that challenge Microsoft directly. For many at Microsoft's HQ in Redmond, Washington, Google has already come too close for comfort. Its desktop search facility, which allows customers to look through any document, programme or photograph stored on their computer, means there are fewer uses for the start button in Microsoft's Windows.

The worry is that Google could develop its own version of Microsoft's Office, which could become so powerful that it dramatically cuts the popularity of Microsoft's operating system and bypasses Windows.

If Google continues with its march to dominate the hi-tech world, it could be on a collision course with regulators across the world, just as Microsoft was after its vicious fight with Netscape, an internet browser provider, in the 1990s.

Analysts believe many years of legal wranglings over allegations of anti-competitive behaviour have forced Microsoft to soften its ways. Scott Kessler, at Standard & Poor's, said: "Microsoft is not perceived as powerful as it once was. That is because of the antitrust activity that has occurred in the past few years and also because the company has tried to improve relations with its partners and customers."

That is a lesson Google might have to learn. The Association of American Publishers is one of several parties who have dealt with Google and are not happy. Allan Adler, of the publishing association, said Google's plan to offer scanned images of books does not properly respect copyright law.

In the meantime, Google's growth appears boundless. In an interview with Fortune magazine in May, Mr Gates, Microsoft's founder and chairman, explicitly acknowledged the Google threat. "If all there was was search, you really shouldn't care so much about it. It's because they are a software company. In that sense, they are more like us than anyone we have ever competed with."