First off, Microsoft is already going to launch products to compete with Google's offerings.
http://www.ft.com/cms/s/0/1c2cfb40-6...44feabdc0.html
So Microsoft is not behind the times here at all.
Second, people underestimate how incredibly hard it is to dethrone Microsoft because they have such a huge installed base of customers. It works like this. Even if Google came out with a product that was a million times better than anything Microsoft offered, Microsoft could come out with a similar product faster than the marketplace would adopt Google's new offering. They simply can't lose on a product by product basis no matter what Google comes out. Google would have to come out with product, after product, after product, that beats Microsoft to even make a dent.
I'm not an Microsoft fanboy, but Microsoft has a huge advantage.