Massucci's Take: Google Chrome challenges Microsoft's future

First Microsoft Bing-ed Google's dominant search service. Now Google is striking back by announcing a operating system called Chrome, which may challenge Microsoft's Windows OS.

The technology industry is a battleground as two of its biggest companies go after each others' meal tickets. Google (GOOG) dominates search while Microsoft (MSFT) owns the operating system universe. Each is trying to cut into the space the other rules.

Is it smart for each of them to go after one another?

In the short-run, no. It's risky and, more importantly, costly. In the long run, yes. One of these two tech giants can own the guts of computers in the future. So, which is likely to win?

Without having a crystal ball, looking at the moves the companies are making, you'd have to bet on Google.

It appears to be the aggressor. Microsoft seems to be protecting its kingdom by digging a deeper moat and not wanting to give up the income from its Windows operating system and Office software. Of course, the company doesn't want its revenue to be siphoned off and so it is looking to protect that river of money. Google, on the other hand, sees the operating system and office software as a means to create more search traffic and help boost sales.

The two companies could not be more opposite in their views. Google, though, appears to be tuned into the current consumer view that what's on the Web should be free. Google's search service makes it's money off of small ads that appear alongside search results. Microsoft makes money at the cash register, which requires you reach into your pocket and pay.

Of course, the Web isn't free anymore than television is free. You pay for free TV with your time, by having to watch or, at a minimum, TiVo through the ads. And, of course, most of us are also paying a monthly bill to our cable companies for the right to have that so-called free programming broadcast into our homes. In the same manner, you're paying for what you see on the Web by having to at least look at the ads.

So if you're comparing operating systems, consumers may flock to Google's when and if it's beefed up enough to be used on a full-sized personal computer. Currently, the plan is for the Google operating system to be available only on small laptops called netbooks.

The Chrome OS will be free to download, while Windows will continue to come at a cost. Consumers will almost always go with the cheaper of two options as long as the quality is similar. In the case of VCR vs. Betamax, the cheaper and lower quality version won out because the quality difference wasn't significant to most consumers.

The real hurdle, one which Google may not be able to overcome, is reluctance to change.

"It's going to be tough," Scott Kessler, a Standard & Poor's analyst, told the New York Post. "The reality is that as the importance of a device or task increases, people have a much lower inclination to consider a change."

Microsoft has a bevy of other ways it can win the operating system battle versus Google. First, it can lower the price of Windows significantly enough that folks are willing to pay for it versus a free product. Many folks won't want to swap the guts of their PCs. Ask someone if they'd like a brand-new engine installed for free on their five-year-old car, or pay minor costs to have their existing engine repaired and most will pay to keep the old one. Of course, if getting the free operating system requires consumers buy a new computer, that will also be a huge roadblock for Google.

Second, if Chrome OS never gets past the netbook phase, Microsoft has little to worry about as netbook sales are projected to be one-tenth of the combined sales of notebooks and desktops. Third, employees won't switch as long as the company they work for continues paying for Windows. Most corporate workers know, change at a large company happens slowly. Corporations continue to use dated software running on slow computers because upgrading takes time and money. It would take five years or more to replace Windows computers with new, free-software based computers at most large companies.

Maybe Microsoft can rest easy for the next decade or so, as it has done for much of the past decade. The Chrome OS shows Google is circling like a shark and plans to keep taking bites until Microsoft's revenue river becomes a stream. Microsoft, though, is the empire beginning to strike back as it's seeing user growth since launching its Bing search engine.

Anthony Massucci is a senior writer for DailyFinance. You may follow him on Twitter at hianthony.

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