Google Aims Twin Daggers at Microsoft's Heart: Rich Jaroslovsky

Dec. 17 (Bloomberg) -- Forget about Google Inc.'s struggle with Facebook for eyeballs and programmers. Pay no attention to its fight with Apple Inc. over smartphones, or to any other tech rivalry.

The search giant's war with Microsoft Corp. is The Big One, the confrontation that will determine what kind of future Microsoft has, and maybe if it even has a future. And the two new weapons Google unsheathed last week carry an unmistakable message of mortal peril.

First came the Nexus S, the new Google-labeled smartphone and the first to run "Gingerbread," Google's latest Android operating system. Then came a plain black laptop called the Cr- 48, the first computer to run the company's Web-based Chrome Operating System.

On the surface, neither seems particularly menacing. The Nexus S, made by Samsung, is the successor to one of the most hyped and least successful products of 2010, the lovely and ill- fated Nexus One. And the Cr-48 isn't even for sale. It's a generic prototype that Google is making available to thousands of developers, companies and others to get them familiar with the concept of the new operating system before commercial versions from manufacturers such as Samsung Electronics Co. and Acer Inc. show up next year.

Enormous Threat

Still, the two devices represent an enormous threat to Microsoft and its chief executive officer, Steve Ballmer. The success of Android is rapidly foreclosing Microsoft's growth prospects as more computing is done on mobile devices. Meanwhile, Chrome OS takes dead aim at its great twin cash cows: the Windows and Microsoft Office franchises.

Of the two new offerings, the Nexus S is the one most visible to consumers. The phone went on sale in the U.S. yesterday at Best Buy Co. stores and online for $199 on a two- year contract from Deutsche Telekom AG's T-Mobile USA, and for $529 with no contract.

The phone, a variation on Samsung's popular Galaxy S line, comes with a gorgeous four-inch touch screen, front- and rear- facing cameras for video chatting and a passel of Google apps and services. Its potential killer application is Near Field Communication, a technology that allows it to read encoded information from special chips that can be embedded in signs, on T-shirts or other objects.

Mobile Payments

Putting NFC support into Android is the biggest step yet toward using the mobile phone as a way of paying for things. And it comes at a time when Microsoft is still playing catch-up. Having frittered away its early strength in smartphones, it suffered a series of stumbles, including a line of youth- oriented phones called Kin that it introduced this year and pulled from the market after less than two months. Its latest effort, the Windows Phone 7 operating system, is a great improvement -- but still lacks such basics as cut-and-paste functionality.

It's possible for Google and Apple to both succeed in mobile phones. It's harder to imagine Google and Microsoft both thriving. Google's business model, which calls for getting manufacturers to use its operating system, is far closer to Microsoft's than to Apple's strategy of making money on the sale of proprietary hardware. And, of course, Google offers Android to manufacturers at a price that Microsoft can't beat: free.

While Android is all about limiting Microsoft's future, Chrome OS takes dead aim at its present: the Windows and Office businesses that, in the quarter that ended Sept. 30, earned $6.7 billion of the company's $7.1 billion in operating income.

In the Cloud

At first glance the Cr-48 -- Cr being the symbol for the element chromium -- looks like a basic laptop. The differences become evident once you turn it on. With no large programs or device drivers to load, it boots in 15 seconds. The operating system is, essentially, just a Web browser that you can never close. Forget about a hard drive: Everything you use, all your programs and all your data, reside in the cloud, on Google's distant servers. And it uses not a bit of Microsoft software.

Nor is Microsoft the only one threatened. What kind of chip powers the Cr-48? Who cares? For the record, the Cr-48 has an Atom microprocessor from Intel Corp., but it's no more relevant than what kind of chip powers your smartphone. How about makers of flash memory chips, like Toshiba? A Chrome OS machine needs little -- the Cr-48 has only 16 gigabytes -- since nothing is stored on the computer itself.

Useless Brick

Chrome completely commoditizes the hardware; the only things that count are being connected to the Internet, and at what speed. For now, that's Chrome's biggest weakness. While the Cr-48 works either over a Wi-Fi network or its built-in Verizon Wireless 3G service, you can't always count on getting a connection. On a cross-country flight this week, the Cr-48 was a useless, inert brick.

On the other hand, that isn't likely to be a permanent condition as Internet connections become ever more ubiquitous. Some airlines, such as Virgin America Inc., have already started rolling out onboard Wi-Fi.

Since Chrome OS, like Android, is free, it's logical to ask what Google gets out of it. Company executives talk about the benefits of tying users to Google services and gaining valuable data to help refine its search algorithms. It remains to be seen whether those users will be troubled by the privacy implications and whether Google's business model will work for manufacturers.

You can't help thinking that the real point of Chrome is the threat it poses to Windows. From its founding, Google has defined itself as the anti-Microsoft. Its "don't be evil" corporate mantra never needed to specify what it meant by "evil," because everyone already knew. The fact is, Google doesn't actually need Chrome OS to succeed. Microsoft, though, desperately needs it to fail.

(Rich Jaroslovsky is a Bloomberg News columnist. The opinions expressed are his own.)

--Editors: Steven Gittelson, Laurence Arnold.

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