Google Goes After Microsoft, Kind Of
Google's foray into the operating system business is grabbing lots of headlines this morning following last night's blog post that the company is set to unleash its Chrome OS into the market, a direct threat against Microsoft and Windows. And while the news might be intriguing, it's hardly news for a number of key reasons.
First, I'm all in favor of Google coming up with new and interesting ways to generate new revenue, but going after Microsoft and its dominance in operating systems might be a fool's chore. Just ask Apple. It's done remarkably well, enjoyed stupendous growth, Macs are selling millions of units every quarter, and yet Apple still only controls a fraction of the market compared to Microsoft. That's not to say Google won't be able to grab some market share points here and there, eventually, but for investors looking at this announcement as an imminent moneymaker, they might be sorely disappointed.
Google has made moves in OS before. The Android Mobile Operating system has been fairly successful for the company, and offers some big time opportunities for the company since the smart phone sector has been so dynamic. Talk of moving Android into a new class of netbook computers from Hewlett-Packard has been interesting as well, especially if Google can migrate the software into devices from Dell and Sony .
But a desktop operating system is a far different animal. And the threat against Microsoft might be a little overblown. Consider that when Microsoft went after Google earlier this summer by unveiling its search engine "Bing," the market laughed off the threat because of Google's stranglehold on the marketplace. Yet, as soon as Google announces plans for an OS to take on Microsoft, it becomes a "death knell" for Microsoft, a "direct threat" to Microsoft's dominance. Come on.
(One thing to consider: The market laughed off Bing because it wasn't clear an alternative to Google's search was even needed, or wanted. The same cannot be said for Microsoft's Windows, so maybe there is indeed an opportunity for Google here. But it's a longshot, and a long ways off.)
First of all, Google says its Chrome OS is still a year away, and that's only in beta form. Microsoft's Windows 7 operating system is already in the marketplace in beta form, and will be formally released in a few weeks. That only extends Microsoft's already tightening stranglehold in the industry. The marketplace might be chomping at the bit for a Microsoft alternative, but even the Google offering is still a long ways off.
Second, an operating system is far different than a search engine, and while Google shares are scampering because of the potential revenue something like this might generate, investors ought to consider the cost as well. Google's got the R&D budget and manpower to get the job done, but once this software is released, the ongoing hit on Google's cost structure could be significant. Operating systems require customer support infrastructure the likes of which Google has no experience with. Call centers, enterprise support, consumer support. These costs could be measurable. That's not to say Google shouldn't make the attempt. More power to them. But investors have to be realistic about how complex an undertaking like this is.
One other thing: Google is hoping to capitalize on its standing in the open source community to make Chrome OS a success. That's a compelling approach, but the underlying message, a Microsoft source tells me, is that one of the most profitable companies in the history of the tech business is hoping a big swath of the marketplace does stuff for free for Google, which, this source tells me, "is a little bit laughable." Bottom line: It's one thing to "ship an OS; it's another thing to support an OS."
This will be an fascinating battle to watch, with Google and Microsoft approaching their versions of market dominance from two decidedly different angles. Microsoft will answer the Google news later today with much the same message I'm already hearing this morning.
For Google, it's another "let's throw something up against the wall and see if it sticks" approach to new revenue streams. Remember the euphoria surrounding Google Apps a few years ago, with headlines screaming that Microsoft's Office suite was going to die, a Microsoft source tells me this morning. "It didn't quite work out that way."
Well, not yet anyway. Goliath vs. Goliath. And ultimately, consumers -- and maybe investors too -- will be the big winners.
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