Microsoft shouldn't be worried about Google's move into the enterprise applications space — but Microsoft is shaping up to be more of a challenger to Google's online ads business, according to Gartner.

In one corner is Microsoft, the leader in enterprise software and PC-centric applications. Microsoft's eye is on the prize — a bigger slice of the US$75 billion in online ad revenue that is forecast by 2011.

Microsoft is looking for growth after failing to see big payoffs from investments in areas like mobile, games, and online services, says David Mitchell Smith, Gartner research vice president and fellow, who authored the Google vs. Microsoft report that will be presented at the Gartner Symposium/ITExpo 2008 in Las Vegas this week.

Microsoft's bid for Yahoo plays into this strategy, and would make the combined company the clear number two in advertising, Smith says.

In the other corner is Google, the search engine that has turned pay-per-click ads into a cash cow. The company is looking to take advantage of — and promote — the move to cloud computing with its Google Apps, which are free for consumers but have a per-user yearly charge for the premier edition targeting businesses.

Smith says he's not convinced Google is trying to make much money off Google Apps, and he predicts that while the effort may be a distraction to Microsoft it won't seriously threaten Microsoft's enterprise business anytime soon.

"When you look at the likelihood that Microsoft is going to make their progress in advertising, we think that's higher than Google making inroads into the enterprise," he says.

"It doesn't mean that Google won't make some progress," Smith adds. "But the use we've seen thus far in businesses is almost exclusively bottom-up, end-user driven. There are not a lot of executives of enterprises who have made a strategic decision to use those products."