Microsoft and Google Set to Wage Arms Race

Bill Gates, the chairman of Microsoft, described Google in an interview late last year as a worthy adversary, a company to test Microsoft's mettle. "This is hypercompetition, make no mistake," Mr. Gates observed.

The rivalry between the companies is growing more combative, and with good reason: the outcome is likely to shape the future of competition in computing and the way people use information technology.

A measure of how seriously Microsoft takes the challenge came last Thursday when it announced that its spending would rise sharply next year, about $2 billion higher than previous estimates. Much of the extra money, analysts say, is going to meet the threat from companies offering advertising-supported Internet services and software, led by Google.

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