Google's PC gamble will take years to play out
BOSTON (Reuters) - Google Inc's plan for a new PC operating system is its most ambitious assault against Microsoft Corp, but it is a gamble that may not pay off for several years.
The rivals have spent years attacking each other, with Google claiming a clear victory for its search engine but not making much of a dent in Microsoft's Internet browser and Office programs.
Google announced on Tuesday it is developing a new operating system for personal computers, a month after Microsoft launched Bing, its first search engine to gain ground on Google after more than a decade of misses, according to early data.
The Chrome Operating System will initially be available on low-cost netbooks designed for Internet surfing and running Web-based software, starting in the second half of 2010.
Google said on Wednesday it will not charge for the software, which could pressure Microsoft to cut prices on its Windows, eroding earnings from the profitable system found on nine out of every 10 PCs.
"On a scale of one to 10, I'd say the threat to Microsoft is a three," said Howard Anderson, a lecturer at the MIT Entrepreneurship Center and former CEO of the Yankee Group.
He estimated that about 2 percent of PC users will try Chrome OS in the first year. If the software gets good reviews from early adopters, Chrome's market share could swell to 10 percent by the end of the second year, he said.
"While people love to bitch about Windows, the user community is used to it," Anderson said.
One major challenge that could delay adoption is getting makers of printers, networking gear, cameras and other devices to develop software that lets their equipment work with the new Google system. There are more than 2 million software drivers that connect devices to Windows PCs.
Google also needs to resolves bugs that will inevitably turn up, as well as arrange technical support for customers.
"Who will support it? It's a big ambition," said Jefferies & Co analyst Katherine Egbert.
Google said it is working with large technology companies on the project, including PC makers Acer, Asustek, Hewlett-Packard and Lenovo, and chipmakers Qualcomm and Texas Instruments.
The new operating system is based on a product from Google that has had limited success: the Chrome browser. As of February, it claimed 1.2 percent market share, compared to nearly 70 percent for Microsoft's browser, according to researcher Net Applications.
Google said Chrome OS will be fast and lightweight, letting users access the Web just a few seconds after turning on their PCs. But it did not provide much information about the product, making it hard for analysts to judge long-term prospects.
"There is a lot of spade work to be done before this is a viable alternative to Windows," said Roger Kay, an analyst with Endpoint Technologies.
The release schedule would keep Chrome OS from interfering with the October debut of Microsoft's highly anticipated Windows 7 -- an operating system that has won praise from reviewers who tested early copies of the software. Wall Street analysts have high hopes for the product, which replaces the widely maligned Windows Vista.
Microsoft declined to comment on Google's challenge, though it announced a new president for the Windows division, Steven Sinofsky, on Wednesday.
"I don't think it will hurt Microsoft in the short run because you have no alternative. Where it will hurt Microsoft is that there is suddenly a viable alternative," said Roger Entner, a technology analyst with Nielsen Co.
"If Microsoft doesn't watch out it will turn into a lethal threat," he said.
Analysts also had a warning for Google, cautioning the company's executives against letting their foray into the PC desktop distract them from the company's core search and advertising business, where Microsoft is making progress.
Bing, launched by Microsoft on June 3 to generally positive reviews, handled 8.23 percent of U.S. Web searches in June, up from 7.21 percent for Microsoft search in April, according to Internet data firm StatCounter.
"They have been making all these attempts at Microsoft. They have been doing nothing with their search," said Fred Hickey, editor of the High-Tech Strategist Newsletter.
(Additional reporting by Sinead Carew, editing by Tiffany Wu)