A poster on Slashdot asks states that he doesn't believe Google, a search engine, threatens MS, an OS & desktop supplier, in any way, and doesn't believe MS are really worried about google.
Google don't seem to compete with Microsoft, in the same way as Netscape didn't - MS didn't have their own browser in Netscape's day, after all. MS still acted swiftly to destroy them utterly.
Google, like Netscape, are cross-platform, free, and significantly reduce the impact of what OS you run and what software you have installed. And MS are fanatical about protecting their OS from any such reductions, however indirect.
Not so many years ago, if I wanted to play a computer game, it had to be installed on my PC. If I wanted to plan a route to drive from A to B, I had to use software installed on my PC. Look at pictures?Software installed on my PC. Send & receive email? Software installed on my PC.
Today, I can do it all via Google - search for online game sites, Google Maps, Gmail. . . Instead of having to buy & install software, software that only ran on Windows, software that had cost me money and wouldn't work on any other OS. I can do it free with Google, and I can do it from Linux just as easily as from Windows.
Google might not provide an office suite online yet, but it's easy to forget just how many things you can do via a browser today that used to need locally-installed software to accomplish. And all that software I didn't have to buy & install is software that's no longer chaining me to Windows. It's one less reason to rely on Microsoft, and that scares them.
And more fundamentally, every cent that Google make is a cent that M$ aren't, as far as their world view goes. That's Microsoft's potential revenue being generated by Adsense - MS have a search engine, MS do ads, and yet cusomers still go to Google. I'd be willing to bet that there are a lot of exec's in MS who consider every penny earned by Google as a penny lost by MS.