Before I comment the Google-Sun alliance further, I just want to make one point. People keep saying, that Microsoft has more cash - hence they can "buy" their way to victory. I strongly disagree.
No doubt MSFT has a large supply of cash - $40 billion I think it is. But as I know from one of my former colleagues now working at Yahoo! Search, then you can't just buy your way to the best search engine. It takes skilled engineers/developers and they don't come in huge supplies. Google has the advantage here compared with Microsoft. Because those that choose to work with Google, also get options in Google. These options can become extremely valuable and make the employee economic independent. This doesn't happen at Microsoft anymore.
At MSFT you get shares instead of options. Amongst other reasons simply because the company isn't growing the way it used to. Surely Microsoft still grows, but the share price has been flat for 3 years. It has been flat for several reasons: The antitrust threat, slower growth than earlier, the threat of Linux and especially the threat from new competitors like Google, that has the capability to produce software, that threatens Microsoft's core revenue streams.
This all means, that although Microsoft has a ton of cash, they can't compete with Google's far more attractive options packages. If Microsoft wanted to compensate its programmers at the same financial level as Google, but in cash, it would severely hurt their financial statements and further send the share under pressure.
As long as Google's shares keep going up (and they will if they keep growing like that), its almost "free" for Google to compensate employees with options, since the market is paying for the show. I think this is one of the fundamental reasons that a growth company like Google can get the better brains, and thereby possible beat stagnate companies like Microsoft.
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Threat of Linux? You have to be kidding me!
Linux failed in US department stores and with the critical mass, meaning it will always be a hobbyist playground
Haha.. no I am not kidding. Linux has been a possible threat to Microsoft - have failed to make any major inroads - but has had that impact on the share price - cause, what IF it became successfull. However, I think that Linux could become more successfull now, if Google was to endorse it, and spend some of their massive R&D to improve it - to better compete with Microsoft.
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