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Microsoft Should Be Scared to Death of Google's Chromebooks

By Sam Mattera - Nov 28, 2013 at 11:00AM

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Microsoft's new ad mocks Google's Chromebooks. With Hewlett-Packard and other PC OEMs throwing their support behind Google, Microsoft is right to be scared.

In the 1990s, Microsoft (MSFT 0.71%) worked hard to undermine Java, Sun Microsystem's programming language. Back then, it was believed that Java would allow programmers to write applications that could effectively run on any operating system, whether it was Windows or anything else. Although it never really materialized, the promise of Java's "write once, run anywhere" design philosophy held the potential to destroy Microsoft's Windows operating system monopoly.

Well, the threat is back, and this time, it's for real. Cloud computing and web-based applications are slowly eroding users' dependency on local applications, in effect, rendering Microsoft's Windows operating system completely irrelevant. Google's (GOOGL -0.57%) cheap Chromebooks could conquer the market for traditional PCs, as Microsoft's hardware partners like Hewlett-Packard (HPQ -2.87%) have begun to support Google aggressively.

Microsoft shows its hand in new ad
Microsoft's new ad has drawn a bit of attention in the tech media -- writers are puzzled by Microsoft's assault on Google's Chromebooks. Business Insider's Jay Yarrow writes:

But, the weird thing about this ad is that it's aimed at the Chromebook, which seems like a nothing business so far. Microsoft actually has to explain Chromebooks in the ad since most people don't know what they are.

That's true -- Google's Chromebooks remain a paltry percentage of the overall PC market today. However, Microsoft's desire to undermine them is justified -- the Chromebook's potential is practically limitless. Although they remain hobbled by their inability to run local software, Google's Chromebooks are incredibly cheap, boot almost instantly, and are more or less impervious to traditional viruses.

Chromebooks are becoming more capable every day
Moreover, the limitations of Chromebooks are being diminished every day. Google's Chromebooks can't run any local software, but nearly anything cloud-based runs just fine. As more software developers offer cloud-based versions of their applications, Chromebooks are becoming ever more capable.

Chromebooks can even run AutoCAD, traditionally known as one of the most demanding pieces of software, because AutoDesk has begun to offer a cloud version. Although Microsoft claims that a Chromebook can't run Office, that's not really true -- owners of Google's Chromebooks can use Office WebApps, a slightly dumbed-down version of Microsoft's full Office software suite.

When Asus announced its Chromebook earlier this year, the company's CEO said that, while he didn't believe Google's laptops would ever catch on among consumers, he thought they had a bright future among businesses, governments, and schools.

That makes sense -- business software, like Salesforce's applications, are increasingly being offered in cloud form. Further, enterprise users can set up virtual desktop servers, streaming local applications to a fleet of cheap Chromebooks.

Microsoft has alienated its hardware partners
Asus isn't the only company to support Google's Chromebooks -- HP has also begun to shift its support toward Google. Earlier this year, HP's CEO Meg Whitman identified Microsoft as a "competitor." For years, Microsoft and HP had been the closest of allies, but with Microsoft taking the unprecedented step of offering its own tablets and PCs, HP feels threatened.

Every time Microsoft sells a Surface Pro, that's potentially a lost sale for HP. And when HP does sell a Windows device, it has to pay Microsoft money for the privilege. That said, HP still sells mostly Windows machines, and likely will for many quarters to come.

But so far this year, HP has rolled out three new Chromebooks, and I wouldn't be surprised if more are in the works. As Microsoft pushes its "devices and services" strategy, HP becomes ever more incentivized to offer alternatives to Windows.

Will Windows survive?
Perhaps the most ironic thing about the rise of the Chromebook is that Microsoft is slowly transforming Windows into a copy of Chrome OS. Windows 8.1, Microsoft's recent update to the Windows operating system, merges Microsoft's online services -- SkyDrive and Bing -- with Microsoft's local operating system.

Windows PCs can still run local software, but with Windows 8.1, they're more connected than ever before. In the way that Chromebook users store their files on Google and become reliant on Google search, SkyDrive integration means that more local files are being stored on Microsoft's servers, while Bing search becomes integrated into the overall experience of using a Windows PC.

Microsoft's Windows has tons of inertia behind it, and it certainly isn't going to go away anytime soon. Yet, although Google's Chromebooks remain just a tiny part of the larger PC market for the time being, unlike the broader PC market, the demand for Chromebooks is actually growing.

With the support of Microsoft's spurned hardware partners like HP and the growth of cloud computing, Google's Chromebooks are a very real threat to Windows and shouldn't be taken lightly.


Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Google. It also owns shares of 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.

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