Last night I arrived at my house just before sundown and witnessed two male deer having a sparring match 15 feet from my front door. They weren’t fully grown males – it seemed like they were adolescents and their antlers were each perhaps a square foot or so in size.

I wish I had my camera to take a good picture. Perhaps I will have another opportunity this weekend. The deer seemed only mildly phased by the presence of my car. They paused briefly then continued going at it. Only the noise of my door opening and seeing me get out of the car spooked them enough to casually end their match a few minutes later.

This incident reminded me so much of what is happening with Google and Microsoft. In a way it is the media that is driving this rivalry as these companies really don’t compete in a major way today. At least not in a way that really affects either one financially.

Today Microsoft really doesn’t have much competition in its enterprise software business. They have successfully wiped just about everyone out. Open source software in general is a threat as well as perhaps Oracle and a few others… but that is about it. Certainly Steve Ballmer doesn’t need to stay up late worrying about SAP or Oracle.

The recent announcement between Google and SUN may make life a lot tougher for Microsoft. Although Google and SUN really didn’t specify how they will be working together – at least not in great detail… It seems that the OpenOffice offshoot of StarOffice will now be distributed by Google.

If Google and Microsoft are really going to be at war for the desktop then Google needs an office suite to compete effectively. On the desktop, Microsoft owns the office suite, the browser and the OS. We know Google is tight with Mozilla, the organization that produces the Firefox browser and now Google has access to an office suite. I can’t imagine Google caring about the desktop OS market for now but they may get cozy with a desktop Linux company in the future.

The question is, what will Google do with an office software product? I think the most damaging concept for Microsoft is to give it away for free. Imagine the revenue loss at Microsoft if this were to happen. Granted, OpenOffice is no Microsoft Office – yet. But Google can improve it and distribute it and not have to pay for the distribution as it will be downloaded by whoever needs it.

If Google does this it will be a huge blow to Microsoft’s revenue and reputation. I don’t expect Microsoft office to die overnight but this could put tremendous pressure on Microsoft to lower prices.

The revenue model is unclear but Google can find a way to wrap ads around the software somehow.

Many analysts are pessimistic about this announcement citing a lack of details as reason why this alliance is all smoke and mirrors. I think these analysts aren’t looking under the hood so to speak. Some analysts do understand what is happening. For example, here are some quotes that are right on:

"OpenOffice is already an alternative, but if Google gets involved in supporting it, that could be the thing that puts it over the top," said Forrester Research analyst John R. Rymer.

OpenOffice could provide a vehicle for Google to diversify its sales, which are driven almost exclusively by online advertising. So-called office productivity software generates more than $10 billion in annual sales, estimated Citigroup analyst Mark Mahaney. He continued, "We believe this creates a potentially interesting new revenue opportunity for Google."

Speaking of revenue, another possible way for Google to leverage this relationship is to integrate AJAX into OpenOffice allowing software-like performance but on a hosted basis. Google could even give away a few months for free and then charge a few dollars a month per computer. This would be the ultimate long-term revenue generator and could validate what Salesforce.com’s Marc Benioff has been saying all along, that hosted applications are our future.

To get an idea of how Microsoft may combat this threat, take a look at this article. The future of software may indeed be hosted applications. Next year will be a full six years since the ASP market officially collapsed and it may mark the time when hosted software of all types reemerge as a major force in computing. I won’t be surprised to see this happen as similar things have happened to VoIP and e-commerce in the last two years. Why should ASPs be any different?

Who will be the leader in the hosted software is difficult to predict at the moment but the winner will be the company with the most drive, energy and stamina… just like mother nature intended.