Google Inc.'s (GOOG) new computer operating system is the Internet giant's latest effort to drive users to its Web services and applications. But the long-term nature of the initiative means the software is unlikely to spur revenue anytime soon.
Late Tuesday, Google said it would develop new operating software based on its Chrome Web browser that will initially be targeted at low-cost portable personal computers called netbooks. The new operating system, also branded Chrome, will be available to consumers in the second half of 2010.
Development of the Chrome OS is a direct assault on software giant Microsoft Corp. (MSFT), which has long dominated the computer-software market and is now trying to muscle in on Google's home turf: Internet search advertising. Last month, Redmond, Wash.-based Microsoft launched a new search site, called Bing, which has gotten strong reviews but remains far behind Google's dominant product.
The new OS also comes as Mountain View, Calif.-based Google looks for ways to diversify its business. Internet search advertising constitutes 97% of the company's $22 billion in revenue and efforts to cash in on its software applications and video-sharing site YouTube have generated limited results.
Analysts said Google's operating-system push was an ambitious long-term strategic move to broaden the company's reach, increasing use of its search engine and other revenue-generating services. But any impact on the company's financial performance would be years away.
"We see limited financial impact from today's announcement," said Bernstein Research analyst Jeffrey Lindsay in a note. "The primary economic benefit may come down the line from helping to expand the use of netbooks."
By targeting netbooks, Google is focusing on the hottest segment of an otherwise-moribund PC market. Deutsche Bank estimates that manufacturers will ship some 25 million netbooks this year, double the number of units sold in 2008. Acer Inc. (ACEIY) and Asustek Computer Inc. (AKCIY) topped the netbook market in the first quarter with 29% and 18% market shares, respectively.
Google said its Chrome OS will be designed to run applications from the Web, rather than through locally installed software like Microsoft's ubiquitous Windows. Later this year, Microsoft will release the newest version of its operating system, dubbed Windows 7, which is designed to be light and fast enough to work on stripped-down netbooks.
Google said it will make its Chrome OS, which will be open source software, available to computer makers for free. But even at that price point, many observers argue Google will still face a long uphill climb to make a mark in the operating-system market.
The company's Chrome browser, launched last September, has failed to make inroads into the browser market despite a huge amount of early hype. Meanwhile, 18 months have passed since Google announced its Android mobile-phone operating system and so far just one phone manufacturer has shipped an Android-based handset to the U.S. market.
"Just because Google puts its name on something doesn't mean it will get adopted in the market," said Edward Jones analyst Andy Miedler. "Google will have to prove [Chrome OS] works well with other software [and hardware]."
Gene Munster, analyst at Piper Jaffray, said Google will have to overcome significant inertia among top PC makers, such as Hewlett-Packard Co. (HPQ) and Dell Inc. (DELL), which have long-established relationships with Microsoft.
"It's going to be a really slow road," said Munster. "People are still comfortable with Windows. It's what people know."
Shares in Google were up 1.2% at $401.15, while Microsoft was down 0.7% at $22.39 in recent trading.