Microsoft Targets Google’s Chromebook For the Upcoming Holiday Shopping Season

Demand for Chromebooks -- inexpensive laptops powered by Google's (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) Chrome OS -- appears to be on the rise. Educational institutions, in particular, have begun to adopt Chromebooks at a rapid rate, while a growing number of PC vendors offer a wide selection of Chromebooks at aggressive prices.

But Microsoft (NASDAQ: MSFT  ) isn't giving up without a fight. This holiday season, shoppers looking for an inexpensive laptop will have a variety of Windows-powered devices to choose from, including the $199 HP Stream.

Microsoft's fear of Chrome OS -- irrational or justified?
Microsoft's campaign against Google's Chrome OS has caught some technology pundits off guard. Despite the growing popularity of Chromebooks, Google's share of the traditional PC operating system market remains well in the single-digits -- according to IDC, only 1% of the PCs shipped last year were powered by Google's Chrome OS.

Yet, the growth of Chrome OS is clearly concerning to Microsoft: Its forthcoming holiday push is not a one-off event, but the continuation of an ongoing, active campaign. Late in 2013, Microsoft rolled out the first ad targeting Google's operating system; several more have followed, and Microsoft announced in April that it was working to reduce the price of Windows-powered PCs by dropping some of the licensing fees it charges PC OEMs.

An ad campaign and pricing shakeup may seem like overly aggressive responses to what's ultimately a niche product. Yet, it seems justified in the context of what Chromebooks could do to Microsoft's business.

Historically, Windows and Office have composed the bulk of Microsoft's revenue, and have generated almost all of its profits. The widespread adoption of Google's Chrome OS could have a devastating affect on Microsoft's core business.

As an alternative to Windows laptops, each Chromebook sold represents a lost Windows licensing sale. Moreover, Microsoft's traditional Office suite will not currently work on Chrome OS -- Chromebook users must choose Microsoft's free online alternative or use Google's built-in competitor, Google Apps (seemingly the more likely choice).

Can Chromebooks go mainstream?
The lack of Microsoft Office may make Chromebooks an anathema to some business users, while their reliance on the web limits their appeal to many consumers.

Google's Chrome OS has many limitations, and Microsoft has aggressively emphasized them in its anti-Chromebooks ads. That message doesn't seem likely to change, as a slide from a presentation Microsoft gave at its partner conference highlights the advantages traditional Windows PCs have over Chromebooks. Many of them are quite significant, including, most notably, the ability to run traditional desktop apps.

It's reasonable to expect the appeal of Google's Chrome OS to increase over time, as software shifts to the cloud and high-speed Internet connections become better and more widespread. Nearly all of Microsoft's hardware partners have jumped on the Chromebook bandwagon, and research firm Gartner expects Chromebooks to triple in popularity over the next five years.

That may prove to be an underestimation, as Google has been working to bolster Chrome OS. Soon, Chromebooks will be able to run some Android apps, and deeper integration between Android-powered mobile devices and Chrome OS-powered PCs appears likely.

Cheaper PCs may not be enough
Ultimately, competing on price may deter some consumers from leaving Microsoft's Windows ecosystem, but it doesn't address the fundamental appeal of Chromebooks.

Yes, Chromebooks are inexpensive, but they are also a good value -- with increasingly fast processors and solid state drives, a $199 Chromebook can offer an experience far greater than a comparably priced Windows machine. They're certainly limited in their capabilities, but they're largely impervious to traditional malware, and can be easier to manage from an IT perspective.

For now, Google's Chrome OS remains a niche offering. Microsoft should hope it stays that way.

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Comments from our Foolish Readers

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 August 13, 2014, at 2:43 PM, Drichter wrote:

    Google can't even reliably make the Windows 8 version of Chrome rotate properly when a device with screen rotation changes orientation. Sometimes and on some devices it works; others and on other devices it doesn't.

    Count me out.

  • Report this Comment On August 13, 2014, at 3:27 PM, VictorWho wrote:

    @Drichter, Two things:

    1. No one cares for Windows 8.

    2. Microsoft made Windows 8 a mess from a developer and user standpoint.

    What's so great about Chromebooks, is that it's so very easy to use. When my mother used a PC, she had so many issues. When I bought her a Chromebook, she required (absolutely) no tech support from me at all.

    The author is wrong about Chromebooks and Microsoft Office. You can use Office Online on Chromebooks, which is basically 90% of the entire world needs.

  • Report this Comment On August 14, 2014, at 5:44 AM, ConstableOdo wrote:

    Two companies, each racing one another to the bottom of the fish barrel in the quest for market share. Yippeeeee! There are a lot of consumers around who love to buy junk computers.

  • Report this Comment On August 14, 2014, at 10:21 PM, booch221 wrote:

    The problem is, Windows 8, no matter how stripped down, won't run well on an inexpensive laptop.

    My Toshiba Chromebook with an Intel Celeron Haswell processor, and 2 GB of RAM, outperforms my Windows 8 desktop, with an Intel i5 processor and 8 GB of RAM.

    There are now hundreds of apps that run on a Chromebook without an internet connection.

    For me, a Windows computer is just as useless as a Chromebook, without an internet connection.

  • Report this Comment On August 14, 2014, at 10:28 PM, booch221 wrote:

    ConstableOdo

    Since I bought my Chromebook, my iPad, which cost, MORE than twice as much, is collecting dust. The Chromebook is more like a Macbook Air, but that costs more than four times as much. I would rather just buy a new Chromebook, every three years. However, I understand that some people just like wasting money.

  • Report this Comment On August 18, 2014, at 4:07 PM, TMFMattera wrote:

    @VictorWho

    I noted that you can use the online version of Office on a Chromebook. But it's the limited/free version. There is little reason for someone using a Chromebook to also purchase Office, or to subscribe to Office 365. If Office 365 eventually shifts to a full streamed cloud version rather than a download this may change. But for the time being, from Microsoft's perspective, it is better for its users to be on Windows or Mac rather than Chrome OS.

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