Google’s new Chrome operating system for netbooks is still a year away. But there is little doubt that it is already keeping Microsoft Chairman Bill Gates and CEO Steve Ballmer up at night.
Gates and Ballmer built a $60 billion business that was ignited by a deal to provide IBM with an operating system for the IBM PC based on a per-unit license rather than a onetime fee. The deal for an OS that Gates bought from a company called Seattle Computer Products also included an agreement that let Gates and Microsoft license the OS to PC makers other than IBM.
This, of couse, goes down as Gates’ greatest moment. It represented a financial windfall that was the seed of all of Microsoft’s PC power and profits.
What’s ironic about this new chapter in the soap opera that is the highly lucrative technology business is that Google CEO Eric Schmidt, formerly of Novell, is taking a page out of the Gates playbook to hammer his old nemesis.
Gates and Ballmer, by the way, left Schmidt’s old company bloodied and beaten in the network wars. Remember, Novell was the leader in the network operating system market. And Gates and Ballmer used their business and technology savvy to leave Novell as an afterthought in the network OS world.
Now, Schmidt and Google are using the same tactic that allowed Microsoft to make a comeback in the browser wars in the early days of the Internet—offering Internet Explorer for FREE. That’s right, free is a great strategy when you have cash to burn and the product is not your primary cash cow. Free killed Netscape.
A free operating system is just what Google is planning to bring to netbook makers with its Chrome OS. Google has, in fact, said it will offer the system free under an open-source license.
For Microsoft, whose operating systems business is already smarting from a PC market meltdown, this represents a financial migraine the likes of which it has never before experienced.
The Wall Street Journal reported earlier this year that Microsoft makes just $15 per netbook with Windows XP Home, compared to between $50 and $60 for PCs running Windows Vista. Take the netbook phenomenon, which is transforming the market and putting a huge dent in the desktop PC market, and then add up the operating system financial hit Microsoft is likely to take.
Believe me, Gates and Ballmer are swapping e-mails right now on how they are going to take the shine off Chrome with a public-relations blitz. And watch, Microsoft will spend more money battling Chrome before it ever gets off the starting line than it will getting the channel locked and loaded with Windows Azure, its forthcoming cloud computing platform.
The sad thing about the operating system firefight between Google and Microsoft is that both these companies will spend mountains of money wining and dining the top netbook makers but will do little to influence solution providers and system builders. Those partners who are able to private-label netbooks and then support customers using them for business and play are the wild card in the operating system wars. Sadly, they are often looked at as a pawn rather than a strategic piece on the chessboard, even though they represent the majority of the PC market.
Google and Microsoft will likely fight the war without giving much thought to the channel. That may be the biggest and most foolhardy mistake they will make as they battle for netbook OS supremacy.
Very insightful article. Here are a couple of predictions as to how the Chrome OS strategy might unfold-
Personally, I think the cow that will be butchered will be Consumer flavours of Linux far more than Microsoft. So prediction 1 is that Chrome OS will grow its marketshare in units by cleaning up fractured Linux market share on low end PC ( netbooks) and mobiles.
Since Chrome will make its money by cross subsidization from advertising clicks, and the OS will be far more limited, they can make healthy profits out of this segment, that a pure software OS company cannot. OEMs will still want a premium Msoft OS option though, even with Chrome OS. So Msoft won't need to drop their netbook OEM pricing by very much, and their licensing revenues in the netbook space won't fall off a cliff. I think the netbook and low end PC story that will unfold will be that Chrome OS is a Linux replacement, more than a Msoft replacement
Msoft will defend their mid/hi end PC, gaming PC, family media PC share from Chrome in the same way they do today against Linux and Apple. Its extremely hard to displace Msoft in the near term- maybe a decade, but Msoft isn't sitting still either. This is the dirty stick segment for Chrome OS, because of the plethora of device drivers required, and support costs to be subsidized with Google ad model. In short- the best way for Google to get a bloody nose is to go after this segment with an immature, low featured competitor OS. No high end PC consumer wants to take a step backwards in features and device support.
The biggest damage that Google have planned for Msoft? So prediction number 2 is that the deepest threat to Msoft revenue from Chrome OS will be Government and Enterprise trying to massively reduce their cost of PC support. There are zillions ( I think thats a word) of locked down, low featured XP PCs in government, banks, insurance companies, etc. that are effectively defeatured dumb terminals on service and maintenance contracts. In this sector, everything is done over the network. The cost of updating the PC OS is insanely high. Their requirements for the PC OS and PC office applications suite look like the product vision of Chrome OS.
Microsoft is viewed as deeply complicated and expensive to manage and maintain, especially in larger scale environments. Those organisations have evolved their architectures already to pure internet architectures, and supporting older Msoft PC OS requirements is an expensive thorn in their side.
If my prediction is correct, then Service Provider and VARs to Government and Enterprise may find that the game is changing rapidly because of the Chrome OS strategy.
Thanks again for your very interesting article.
DavJ