Has Google Finally Succeeded Where Intel Failed in Challenging Apple?

When Google (Nasdaq: GOOG  ) first launched its Chromebook laptops running Chrome OS last year, they quickly flopped and were derided as pricey devices that amounted to little more than an Internet browser. For example, when CNET reviewed the model updated this summer that started at $449, the site didn't hold anything back with its criticism:

  • "As it currently stands, it's merely an invitation to pay a lot of money to be part of a Google experiment. And you're the test subject."
  • "I applaud Chrome OS and its simplicity, but if you want a taste of it, here's my advice on how to get it for free: download the Chrome browser on your computer, and then install your choice of apps from the Chrome Web Store. There, you're done."
  • "There's no good reason to buy a Chromebook at this price."

Point taken
Well, it seems like Big G has taken this constructive criticism and, well, constructed a much more compelling offering with Samsung: the $249 Chromebook unveiled last week. In addressing the biggest complaint about older Chromebooks (the price) and repositioning the laptop as a secondary computer "for everyone," Google has nailed it.

Chrome OS has always been characterized as a lightweight operating system. In that sense, it should be accompanied with lightweight hardware and a lightweight price.

Google achieved this low cost in part by ditching the pricier Intel (Nasdaq: INTC  ) chips inside the older models and going with an ARM-based  (Nasdaq: ARMH  )  chip from Samsung, the same kind typically found in smartphones and tablets. In this case, we're talking about Samsung's next-generation Exynos 5 chips found inside, the first to market to with ARM Cortex A15 cores that feature significant performance gains.

The search giant began selling the new Chromebook through its Google Play storefront on Monday, and within just one day has sold out of its initial stock. New prospective buyers can only ask for an email update when more become available.

Source: Google.

The device is also out of stock at Google's third-party retail partners, so demand for the new Chromebook appears robust. We don't know how many units these orders represent, but they're certainly being snapped up right now.

Picking up where Intel left off
The device resembles Apple's (Nasdaq: AAPL  ) MacBook Air, featuring the same screen size and resolution. At a quarter of the price, the Chromebook will certain fall far behind in overall build quality and hardware design, but consumers will be expecting that at a quarter of the price.

Investors may also remember that Intel has been pushing its Ultrabook initiative very aggressively this year, with PC makers launching handfuls of MacBook Air lookalikes. However, this move by Intel was actually more in response to the threat of the iPad and its ARM-based chip rather than the MacBook Air and its Intel chip.

At the beginning of the year, Intel hoped that Ultrabooks would comprise 40% of consumer notebook sales. Earlier this month, researcher IHS iSuppli dropped its 2012 Ultrabook forecast by more than half, from 22 million to 10.3 million. iSuppli analyst Craig Stice had said, "So far, the PC industry has failed to create the kind of buzz and excitement among consumers that is required to propel Ultrabooks into the mainstream. This is especially a problem amid all the hype surrounding media tablets and smartphones."

In that sense, I would classify Intel's Ultrabook push a failure relative to its early ambitions.

Kudos!
At $249, the new Chromebook is a tempting purchase for consumers in the market for either a tablet like the iPad or even a MacBook Air. The Chromebook only has but a fraction of the capabilities of the MacBook Air and it certainly targets a different, lower end of the market, but it could easily suffice for budget-conscious buyers willing to accept less functionality for less cost.

This is a prime example of Google's disruptive nature. It's not doing this to profit on the hardware or operating system, like Intel needs to by selling its chips or Microsoft (Nasdaq: MSFT  )  does by selling Windows. It's doing this to reinforce the moat surrounding its online services and advertising business, and in doing so represents a threat to incumbent players.

In the grand scheme of things, Google will likely remain a tiny fish in the PC ocean for the foreseeable future, but at the same time it has presented a viable alternative to tablets and more expensive laptops. Well done, Big G. Well done.

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Evan Niu, CFA, owns shares of Apple. The Motley Fool owns shares of Apple, Google, Intel, and Microsoft. Motley Fool newsletter services recommend Apple, ARM Holdings, Google, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 23, 2012, at 5:47 PM, chastenruin wrote:

    Psst.

    Apple is a co-owner of ARMH. Is it really a challenge to Apple when Apple sees revenue from the licensing? Apple is making money off every ARM device. They are at the core of mobile.

    Googles still going to pay a license, but they may not make money on the product. Apple does nothing and takes a check for every unit sold. Id say Apple won here too.

  • Report this Comment On October 23, 2012, at 6:30 PM, TreyAnas wrote:

    chastenruin

    You're mistaken. AAPL sold most of its ARMH holding in 1999. If they make something off an ARMH license, it's not mych.

    Second, even if they still owned ARMH, their license revenue on a Chomebook sale would come anywhere close to what thy make on an iMac, iPhone or iPad. If a Chromebook sale means one less i-something sale, AAPL doesn't win.

  • Report this Comment On October 23, 2012, at 7:23 PM, roguesisland wrote:

    You're kidding with the headline right?

    Nowhere in Intel's history have they challenged Apple. They are a supplier to Apple. Period.

    Bogus headline, bogus negative Intel regurgitated diatribe, and bogus website.

  • Report this Comment On October 23, 2012, at 7:43 PM, joshisam wrote:

    I am assuming you are asking a question of your readers. Here is the answer, Google HAS NOT succeeded in challenging Apple. There you have it.

    BTW, you conveniently failed to mention that the ChromeBook has a 2 GB ram and 16 GB storage space. It comes with a 100 GB of cloud storage which will cost you after an introductory period. MacBook Air has a 4 GB ram and 64 GB hard drive, funny how you fail to mention that.

    if you are looking for a cheaper computer get a PC (4-6 GB ram and 500 GB hard drive; http://www.staples.com/Gateway-NE56R12u-156-Laptop/product_9... for about $330. Can you please now write an article saying PC a better buy than a ChromeBook?

  • Report this Comment On October 24, 2012, at 5:14 AM, H3D wrote:

    "... but at the same time it has presented a viable alternative to tablets and more expensive laptops. Well done, Big G. Well done."

    Yes Larry, I mean Mr Page sir, what kind of sycophant do you want?

    This simply isn't a credibly usable device anywhere where there isn't a reliable high speed Internet access.

    Which makes it unbuyable in most places, and unbuyable for anyone who travels. Don't be fooled by the 16G flash. It doesn't solve the problem without much more intelligent software.

  • Report this Comment On October 24, 2012, at 6:49 PM, chilero wrote:

    I'm long google but these are just garbage. They should concentrate more on the Nexus tablets and perhaps copy the MS Surface idea and make a Nexus hybrid instead these.

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