Google is the most dangerous company now by far, in both the good and bad senses of the word. Microsoft can at best limp along afterward.
When did Google take the lead? There will be a tendency to push it back to their IPO in August 2004, but they weren't setting the terms of the debate then. I'd say they took the lead in 2005. Gmail was one of the things that put them over the edge. Gmail showed they could do more than search.
Gmail also showed how much you could do with web-based software, if you took advantage of what later came to be called "Ajax." And that was the second cause of Microsoft's death: everyone can see the desktop is over. It now seems inevitable that applications will live on the web—not just email, but everything, right up to Photoshop. Even Microsoft sees that now.
Could you convert to the Google “OS?”
In general I think using Google’s “office suite” is a realistic solution if you’re in a situation where you can count on having Internet connectivity most of the time. It’s especially useful if you need to access your information and content from lots of different computers or locations; and it offers some really nice tools for collaboration and sharing. I’m certainly not 100% converted yet, but if I had to, I could be.
Microsoft says open-source violates 235 patents
FAQ: What's behind Microsoft's saber-rattling against open source?
Clearly Microsoft is going with a fud strategy, try to scare customers away from open source. That seems like an admission that Microsoft product’s can’t compete.
In the mean time, Google, which certainly uses proprietary code, continues to gain market share by offering new products.