Why Does Chrome OS Make Sense?
Yesterday when I baldly asserted that Microsoft wouldn’t try to compete head-to-head with Chrome OS I started to get nervous. How could I make such an unequivocal prediction? What if I was wrong? Looking over the situation again, though, I’m quite certain Microsoft will stay out of the game. Here’s why:
Imagine that you own a casino in Las Vegas and an airline that flies to Las Vegas. You notice that the less you charge for travelers going to Vegas, the more people fly, and the more people fly, the more money you make from your casino. For every $10 you give up in ticket revenue you earn $100 in “gaming” revenue. It makes sense to drop ticket prices until every seat on every plane is full (and buy more planes when you can afford them).
Now imagine that you only own an airline, one that also flies to Las Vegas. Your competitor is dropping prices towards zero. It doesn’t make sense to stay in the business–you’ll lose more and more money until you quit. You are better off changing routes so you don’t have a cross-subsidizing competitor.
Google is in the first position, Microsoft is in the second. The desktop operating system is the airline and search is the casino. Google has every motivation to evaporate all the profit in the OS profit pool (they lose nothing) and enhance search advertising profits. Microsoft has no way to economically compete in the OS market, unless they can convince customers that they really really need the advantages of “real” applications and keep those applications ahead of the growing capability of browser-based competitors (or throttle back the capabilities of browser-based applications, which would explain the incompatibilities in IE).
But…
Microsoft could look at its enormous pile of cash and decide to spend some of it slugging it out with Chrome OS. The problem is that Windows Lite:
- Would have to not only be free, but would have to leapfrog Chrome OS in several ways–even simpler, even faster, even more attractive to customers, even more attractive to manufacturers.
- Wouldn’t make any money, ever. It would simply keep Google from making money. And even that wouldn’t work, because anything that creates Internet usage fills Google’s coffers. It’s hard to explain to shareholders how if you hadn’t held that enormous bonfire with their $100 bills, there would have been an even bigger bonfire later.
- Has to compete with other projects at Microsoft that could actually make money.
That’s why I’m sure Microsoft won’t respond in any substantial way. They will fuss and bluster, explain how “just a browser” isn’t a “real” OS, and maybe lean on manufacturers. In the end, though, Google has them pinned.
Bing!
All this puts Bing into a new light. Yes, Microsoft wanted a slice of the revenue that was flowing south. Even more, though, they wanted to forestall exactly the kind of strategic move Google has made with Chrome OS. It’s too late now.
So yes, I’m certain–Chrome OS will own the netbook and spread upmarket from there. The whole thing will take 8-10 years to play out (including the disruptive innovation scenario). With any luck, if I’m wrong it’ll be long enough that no one will remember.
Your analogy is flawed, although some of your conclusions may not be…
Microsoft (the airline in this case) own huge swathes of Las Vegas (Office, SQL Server, etc etc etc). Lots of people already visit this Vegas because of it (most netbooks run XP). People on the Google airline are only able to go to the Google casino (Chrome running on their OS).
Why try and compete in free airline tickets to one Casino when you own more of Vegas? Why not get people to pay some money for airline tickets because they’ll be able to see more of Vegas when they get there?
You’re also assuming netbooks are here to stay… Debatable. Manufacturers are already seeing sales being blurred with the notebook market and consumers who are dissatisfied with netbooks because of their lack of power (largely due to lack of consumer understanding).
Last but not least. Google have said they want to run an airline, something they have no experience in. It would all be more convincing if they had something to show. To quote Ward Cunningham “It’s all talk until the code runs”.
My thinking in this case is limited to the desktop side of things. I agree that Microsoft has a very strong position vis a vis Google on the server (Linux is another story). Office is part of the “airline” in this case, though, not the casino. Microsoft own virtually none of the casino (search).
I’m making no assumptions about the staying power of netbooks in my argument. Netbooks are just a toehold–they are the least attractive profit opportunity for Microsoft and the platform where the weaknesses of the early releases of Chrome OS will be least noticeable. Once Chrome OS is firmly established on netbooks, it will move up to bigger and bigger desktop hardware. That’s the way the disruptive innovation story goes. In response, Microsoft will move to higher and higher margin businesses on the desktop (with fewer and fewer customers), until it is squeezed out. Either that or they will convince consumers that they absolutely must have what only Microsoft can deliver. I performed my simulated Chrome OS experiment precisely to figure out whether the latter strategy is viable, and I don’t think it is. I can live just fine with only a browser (as soon as I get a decent programming environment, that is). If anyone will survive on a high-end desktop experience it will be Apple.
I agree that Microsoft can’t compete with Google in this space, although they will try. What worries me is that I think Google is about 5 years too early with ChromeOS. The real dealkiller for Web-OSs is the bottleneck at the cable modem and the wireless router.
I have 145 Gigs of personal photo and video archives. Even if I were willing to spend the weeks it would take to get that into the cloud, the download speed is not fast enough to view HD video streaming from my cloud server.
Someday it will make perfect sense to store everything on ubiquitous cloud storage, but we are a long way away from that. Let’s focus our energy on high-speed wireless internet access everywhere.
Jeff,
From my perspective your 145 G of photo and video just means that you aren’t this year’s customer for Chrome OS. In three years, no problem.
Google doesn’t need you to buy Chrome OS, it just needs enough people to buy to get the positive feedback loop going.
Cloud = Ability to Roam. Google OS is likely to appear pre-installed at Internet Cafe’s, Hotel TVs, Airplanes, Kiosks, and just about anywhere else an x86 and monitor can appear. People’s ability to roam knowing they can safely access their email, calendar, and productivity tools from anywhere will be the key selling point.
Google 2-tier viral marketing plan is rather consistent and brilliant. You must have a GMail account to use free services (and get hit with ads). Or, pay $50 per year to have a unique domain name email address and use the apps sans ads and with considerably more storage resources.
Because the OS will essentially just boot into a browser, there’s not much to it. In fact, Google OS is ripping out huge chunks of the Linux distro and basically just running Chrome on top of the BIOS to guarantee “instant on”… more like Google BIOS.
Kent, I think Google’s motivation couldn’t be better illustrated as with your airline analogy, however, there are probably enough bright minds left at Microsoft to consider a defense strategy.
Jeff, I think it is a common mistake to consider ourselves as a representative example for computer users of the future. We’ll be a small minority that probably will continue to use operating systems as we know them (Kent is again right that Apple has more suitable products for us).
The majority will be far less technically skilled people as well as elder people (young people learn fast so they will work with most anything they can afford). There is just no way for this majority to work with existing operating systems and desktop applications. Moreover, most computer users will be located in Asia and an open source operating system that can be adapted to local needs is far more attractive to those markets compared to expensive, closed source products.
See also:
http://www.jroller.com/sebastianKuebeck/entry/some_thoughts_on_google_chrome
Kent,
I think the problem here is not if they will do, the problem is if they can. Their culture is so different that should “embrace change” so much that will change the company itself.
Yes I know, the fact they they haven’t done it before it doesn’t mean they are not going to do it in the future but when they tried, they just made a kind of “draft copy”.
I think they’d better go to another innovation direction: better for them and better for us.
PierG
http://pierg.wordpress.com
The time has been right for a new OS for sometime now. There might be more people already working on building new casinos. It seems likely that within a year or so more and more people will start joining in, a ripple effect will happen. There will be an overcrowding in the casino space, and it might no longer be very profitable for the big casinos to keep running their business, with lots of new small casinos all around. I think it will really become a big business for small startups, but a small business for the big guys.
The web OS might make it big and replace the standard desktop OS, but it seems unlikely that only a few will rule that market, unlike in the standard desktop space. The big guys (including Google) need to look at somehting else. Although Google already has the search market. For other’s it is more difficult, they need to innovate like mad in order to survive.
Kent,
I think you are right on this one. However there is a key aspect to disruptive technologies that I think you are not stressing enough. Disruptive technologies are disruptive not only because they make existing uses more convenient, but because they have properties that enable the technology to be used in radical different ways.
To keep to Christensen’s example of storage technology, the 3.5″ HD not only made smaller, more convenient “pizza-box” desktops possible, but also laptops. SSD technology will not only enable devices that were already using small HDs to be smaller and rougher, but will also make new types of intelligent devices possible.
So to extend the airline/casino metaphor, not only can Google give away the tickets free of charge, but their planes are smaller and don’t need much of an airstrip. Combined this means that they can set up flights from every little town. Microsoft on the other hand can only fly from cities with big enough population to sustain their pricier flights and with an airstrip long enough for their larger, more powerful planes.
I think an interesting aspect of Chrome OS is that, unlike when other new OS:s are introduced, it won’t diversify the development resources for content providers. As Google says themselves, any application that runs on Chrome OS will also run on any modern and standard compliant browser. Especially for SaaS vendors this will be a blessing. If you can mash and integrate with others well enough on Chrome OS, you’ll have that effort pay back also when users are running a web browser on a traditional OS.
The idea of “lightweight OS” is not new. I’ve read some vision of “portable Windows” from Microsoft some year or two ago – you have all your applications on your USB with the data, come to the PC and boot your own environment there. Chrome OS seems the same to me, but your applications and data are stored on the net and will download to OS (aka Google Gears + GMail offline feature).
I’m afraid the idea will actually work, which is kind of stupid – we’ll give up even more control over our information, data and life to someone out there. What will happen if vendor ceases to exist? Or if someone decides to deny access to your data?
Oleg, you are perfectly right with your security concerns. I hope there will be a way to store data locally or encrypt it. See Bruce Schneier on cloud security issues:
http://searchsecurity.techtarget.com/video/0,297151,sid14_gci1355568,00.html
http://www.schneier.com/blog/archives/2009/06/cloud_computing.html
Widespread Internet access is already changing how we use our computers. Once we have ubiquitous high-speed Internet access*, our desktop experience with fundamentally change, in ways we can’t really predict. Google is simply taking steps to be prepared for this new world.
Most of the arguments for enterprise utility (on-demand, in-the-cloud) computing can also be made for individual utility computing, once the availability and affordability are improved. Why should I (or my grandfather) have to worry about backups, software updates, processor speed, etc.?
*Ubiquitous means a wireless solution that’s affordable for nearly everyone and has coverage nearly everywhere, like basic mobile phones now. High-speed means around 50/20Mb (I guess), at least being able to stream an HD video feed in real time, work on a remote document, have a few chats open, etc.
Why doesn’t Microsoft fight back with a free version of Windows that’s funded by advertisements? Fight Google on it’s own turf by offering a product that’s free, defaults to Internet Explorer and the search provider and homepage default to Bing (and can’t be changed). Perhaps with unobtrusive but frequently visible advertising.
When I think about it, I’d probably tolerate some unintrusive advertising if Windows were free.
Put yourself in the place of a Microsoft executive. First, netbooks is a tiny market and about the least profitable part of the OS business. How much effort do you want to put into defending it? Second, all of your suppliers and customers are comfortable with the current model. Manufacturers are used to giving Microsoft a royalty per computer. Moving to a model where perhaps they got a percentage of ad royalties would mess up their business planning. Defending against Chrome OS in any substantial way just doesn’t make sense. It’s more trouble than it’s worth. So theoretically there’s nothing keeping Microsoft from a robust response, but practically there is tons of organizational inertia working for the status quo.