Chrome OS is futureware, not vaporware

Many of the pundits claiming that Chrome OS will threaten Windows give the wrong reasons. They're not seeing the big picture. Likewise, those people asserting that Chrome OS is no threat to Windows are wrong altogether -- same can be said of those people calling the operating system vaporware. Google has got the right approach at the right time.

Microsoft certainly isn't doomed because of the Google operating system. But Microsoft is in a big heap of trouble, because:

• US and European antitrust oversight limit how Microsoft can respond to the new operating system, particularly one with a browser at the core.
• The econolypse is tearing up Microsoft revenue streams, putting the company in a decidedly defensive posture. Priority is cost-cutting retraction, not expansion.
• Microsoft will not risk disrupting existing revenue streams or losing customers. Google can take big risks, because it is opening up new revenue streams and acquiring new customers.
• Google is focused on a new application stack -- from the mobile device to the Web -- but Microsoft has no comparable alternative. Windows is fragmented across disparate devices.
• Microsoft's existing application stack -- Office-Windows-Windows Server -- is eroding. Content creation is rapidly shifting away from productivity suites, among businesses and consumers.

It's All About Platform Competition

Google and Microsoft are both already platform competitors. Microsoft's core platform is the PC, for which Windows is the extended platform. Google's core platform is the Web server, for which its search algorithm and wrapped-around informational applications and services are the extended platform. Microsoft has pushed from the PC and PC server to the cloud, with Windows Live/Bing, its Online Services and forthcoming Azure Services Platform. Google has pushed to the PC -- and more recently the mobile phone -- with Desktop Search, Gears and other applications. Google also has pulled some applications to cloud, with services like Gmail and Apps.

Where the platforms collide is the revenue stream and how partners make money from them. Microsoft sells software through partners. Microsoft software isn't free. Partners make money by selling and servicing the software or selling hardware around it. Windows is a lucrative platform for many, many, many third parties.

Google's revenue approach is quite different, and it's this difference that keeps Microsoft CEO Steve Ballmer up at night worrying about Google: Free. Google gives away most of its products or services for free, or charges very little for them. Google instead derives revenue from services sold around its free stuff -- as do the company's partners.

Free is Microsoft's worst nightmare. It's why Ballmer obsessively chases every new Google product or service. Microsoft can't compete with free, and company executives clearly understand. It's one explanation why the company spends so much time and money on TCO studies attempting to show that free software, like Linux, costs more than Windows and other Microsoft software.

Microsoft understands free all to well. Youngster Google is doing to Microsoft what Microsoft did to so many competitors when it was a young company with few customer or technological obligations. Microsoft gave away stuff for free, too, or charged much less than established competitors like IBM. What is Windows bundling but the taking of something some other developer charged for and giving it away for free with the operating system? Microsoft makes money directly from and around the Windows platform, which, until recent antitrust problems, extended by way of stuff bundled in for free. Likewise, Google makes money directly from and around its Web platform by offering stuff for free. Microsoft's problem: Google free cuts into existing revenue streams. Microsoft cannot compete with free, when it comes to Office, Windows or server software. (Microsoft's so-called free productivity response, Office Web, will be topic of another post.)

Late last week, Google clarified: Chrome OS will be free. Big deal, some people will say. Linux is free today. But Linux isn't a broadly appealing platform, either. Google, like Microsoft, offers a platform that makes lots of third parties lots of money. Google is positioning Chrome OS first for mobility. Chrome OS will put the "Net" into netbooks and mobile handsets. Google's strategy is simple: Extend free vertically along a new application stack from the mobile device to the cloud.

I'll highlight one simple opportunity, as example: GPS. Google's search and advertising business would have more punch from GPS location. Suddenly, local search would be more local. Keywords and other advertising could be location specific. GPS is standard on most smartphones and it's moving to netbooks, too. The power of Google free is what the company can sell around the platform along the vertical stack from mobile device to the Web.

Joining the Social Revolution

Microsoft's application stack is quickly losing relevance. Google clearly understands this. I don't really want to call my former colleague, and really smart analyst, a Windows apologist. But it's oh-so 2005 for Michael Gartenberg to assert that "Chrome OS is not a threat to Windows." He asserts: "Right now, this all about Google putting pressure on Microsoft at a time when MSFT would rather keep the market focus on Windows 7, not some upstart Linux platform."

Yes, that was true four years ago. But not today. Sure, Google is tweaking Microsoft a bit, but Chrome OS is serious business.

Look around at the startups bringing societal changing products to market -- and I contend the cultural impact is at least as dramatic as brought by the PC. For example, most social media startups, whose products and services are taken for granted today, came to market in the last three years. Facebook, Twitter and YouTube opened to the public in 2006. Most other popular or growing popular social media tools launched within the last three years: Disqus, FriendFeed, tumbr, Twine, Qik and USTREAM, among many others.

Facebook claims over 200 million active users, up from about 150 million six months ago. US Facebook users spent 13.9 billion minutes on the site in April, up 700 percent year over year, according to Nielsen Online. In May, Twitter had 18.2 million unique visitors, for 1,488 percent year-over-year growth, according to Nielsen Online. Same month, 95,357 unique viewers watched more than 6 million video streams at YouTube, according to Nielsen Online. Second-ranked Hulu: 382,322.

Something else happened since 2006. Microsoft released the poorly received Windows Vista. Most PC users ended up staying with aging Windows XP, which needed to get new features from somewhere. Startups delivered them from the cloud. Meanwhile, Apple marketing and Vista malaise helped boost Mac sales, further empowering cloud computing and social media startups.

Internet Explorer should be the gateway to these cloud services, but its usage share is declining. For the first three weeks of June, Internet Explorer usage share was 65.5 percent, down from 79.12 for June 2007, according to Net Applications. Stiffer competition is one reason. For example, within the last three years, Apple and Google released Windows browsers, Safari and Chrome, respectively.

If Google launched Chrome OS four years ago, Microsoft wouldn't need to worry. But today, the PC's relevance is in decline before the mobile and Web platforms. Absolutely, Chrome OS is a threat to Windows and Microsoft's application stack. Again, to be clear: The erosion will come from mobile devices along the new application stack to the cloud rather than Microsoft losing to Google along its mature application stack from the PC to the server.