The phenomenon known as Google (NASDAQ: GOOG) is beyond remarkable. It defies almost any MBA course case study. This company was founded less than 10 years ago in 1998. The company went public in August 2004 and has already captured a market capitalization of $225.70 billion and commands a share price of $723.00. The company has delivered earnings and revenue consistency that almost belies logic. It has literally beaten every quarter's estimates and yet provides little to no guidance. In the next five years, Google will be bigger than Microsoft (NASDAQ: MSFT) in the most important metric: market capitalization.

Microsoft currently has a Market Capitalization of $344 Billion and its price per share has remained steady averaging just $32.05 a share price with 9.4 billion shares outstanding.

Google already dominates the Global search market with both Microsoft and Yahoo just barely keeping hold of their dwindling market share.

But where does Google go from here? With expected earnings per share this year ending December 2007 at over $15 and December 2008 earnings per share over $20 (that's of course before Google beats the estimates and analysts raise them again), the next stop is $800-925.

Google has an incredible opportunity to race up to a $500 billion market capitalization within the next five years if not sooner, and it will be bigger than Microsoft.

What continues to make Google a compelling buy even at a $723 share price, is its operating margins and pricing power. The leader gets to set the prices. The company's operating margins are sturdy and sustainable at over 50%! The research and development spend is holding in the low teens as a percent of revenues which is normal. Some have questioned if Google has under spent in R&D. What professional portfolio managers value the most with Google is its operating margins, then throw in the revenue and earnings growth of over 35-40% per year. Then for good measure, Google is not only taking market share in its core businesses, it is defining the market scope and pricing structure.

A Google takeover of Microsoft would represent a dramatic riposte to Microsoft's attempt at significantly expanding its presence in online display advertising, analysts said. While Google now holds a commanding lead in advertising linked to search results, the company has trailed both Microsoft and Yahoo in display advertising revenue. Microsoft and Yahoo also boast a combined unduplicated audience in the United States of 129 million, compared with Google's 108 million, according to Nielsen/NetRatings

A Google purchase of Microsoft would combine two of the largest online audiences and build a colossus unequaled in the business of display advertising on the Web. But any takeover or merger could also prove unwieldy, involving a marriage of companies with divergent cultures and leadership structures, and invite intense government scrutiny over possible antitrust violations, according to analysts

The New York Times had reported that Microsoft had been exploring the idea of a partnership, or even a merger with Google, before Google's IPO, in order to grab a slice of the lucrative search business that captures advertising dollars on a pay-per-click-basis. Now fast forward to today and Google will soon be in the position to acquire Microsoft to grab a slice of the lucrative desktop applications and video game market.

News Analysis: "Search, Ads and Apps" is just a tagline, but it may hint at something deeper for Google, such as a foray into the enterprise applications and video game market.

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