Netbooks: Google's ace in PC war with Microsoft

TAIPEI Thu Jul 9, 2009 8:50am EDT

An employee poses with the low-cost Asus Eee PC laptop inside a mall in Taipei February 25, 2009. REUTERS/Nicky Loh

An employee poses with the low-cost Asus Eee PC laptop inside a mall in Taipei February 25, 2009.

Credit: Reuters/Nicky Loh

TAIPEI (Reuters) - Low-cost netbooks could provide the fertile ground Google Inc (GOOG.O) needs to make its free PC operating system a success as it prepares to take on Microsoft Corp's (MSFT.O) dominant Windows juggernaut.

Google's new Chrome Linux-based operating system will be free-of-charge, in stark contrast to Windows, which analysts say costs anywhere from $20 for the older XP system to at least $150 for the current Vista system.

That price gap could be just what Google needs to attract price-conscious consumers of netbooks, the bare-bones PCs which sell for as little as $400 each. The Internet search giant has said Chrome will initially be targeted at netbooks.

"Google's move is very timely because of all the bad press that Microsoft's been getting over its pricing for Windows 7," said Gartner analyst Lilian Tay.

"Microsoft is unwilling to cut prices, and PC brands are probably already unhappy with that because they're already trying so hard to make the extra dollar from the cheap netbooks."

The PC industry is struggling to recover from its worst downturn, hit by the global recession and as booming netbook sales cannibalize traditional laptops that cost as much as six times more.

A coming generation of "nettops," being promoted as the netbook equivalent of traditional desktop computers, could strain the industry further.

Chrome could be just the ticket for netbook makers to boost their profit margins, as the Web-centric nature of netbooks makes it a natural fit for Google, which has carved out a space for itself as a major innovator on the Internet.

Most major PC brands declined to say if they would make Chrome-based netbooks, although Google has named big tech names such as Hewlett-Packard (HPQ.N), Acer (2353.TW) and Lenovo (0992.HK) as partners.

Taiwan's Asustek (2357.TW), which pioneered the netbook in 2006, called the Chrome operating system an interesting development.

"We're looking very closely into it, and will be seeking user feedback and seeing what the industry has to say about it before deciding whether we'll use the system in our PCs," Asustek Chief Operating Officer Tony Chen told Reuters."

TESTY RELATIONS

Microsoft, relatively late to embrace the netbook craze, had initially said it would be hard to create a new class of PCs and seemed content to watch on.

It remains a reluctant supporter even with netbooks' current rapid growth, as sales of cheaper versions of Windows used on netbooks have cannibalized more expensive, advanced versions, hurting revenues at the software maker.

Microsoft has tried to restrict how its upcoming Windows 7 version can be used in netbooks, and says it won't support certain low-cost chip-sets from UK chip designer ARM (ARM.L).

Google may seek to exploit some of the resulting PC maker discontent with Microsoft on the issue. Already, Google has said it will support netbooks running on ARM chipsets as the British company launches its own aggressive plan to take up to a 30 percent share of the market next year.

"Microsoft has never lost 30 percent of any PC segment in recent memory," said Vincent Chen, an analyst at Yuanta Securities. "If Google is successful in the ARM segment, that's going to give it a huge boost to expand even further."

Some analysts however remain skeptical on Chrome's long term chances, saying the system, based on the open-source Linux, is just the latest version of an unsuccessful formula.

"When you look at netbooks, all of them ran on Linux in the early days," said IDC analyst Bryan Ma. "They tried it, but users didn't want that. They wanted something familiar, and in today's world, that's Windows."

(Editing by Doug Young and Anshuman Daga)

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