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For Microsoft, Samsung's Newest PC Is Evidence of a Disturbing Trend

By Sam Mattera – Mar 18, 2014 at 11:00AM

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Samsung's latest PC extends Google's challenge to Microsoft's Windows.

Earlier this month, Samsung (NASDAQOTH: SSNLF) announced the 13.3-inch Chromebook 2, a faux-leather-clad successor to its popular 2012 Chromebook. Like its predecessor, it's powered by Chrome OS, Google's (GOOGL 2.43%) web-dependent operating system. Although it sports a larger, sharper screen, it doesn't offer much in the way of improved functionality -- fundamentally, it's still a lightweight laptop largely dependent on Google's web services.

But at $399, it's downright expensive compared to other Chromebooks, many of which cost only half as much. Samsung could be setting itself up for failure, but the company's willingness to offer a more high-end Chromebook is not a good sign for Microsoft's (MSFT 2.40%) Windows.

The growing popularity of Chromebooks
"Chromebooks have surprised us in the breadth of their field. It is not just education, it is small business," said Meg Whitman, Hewlett-Packard's CEO, at a technology conference earlier this month (via CNet).

Hewlett-Packard has become one of the biggest proponents of Google's operating system since it launched its first Chromebook about a year ago, but it's not alone -- in addition to Samsung, almost all of Microsoft's hardware partners have jumped on the Chromebook bandwagon.

Currently, Google's Chrome OS powers just a fraction of the PCs on the market: According to IDC, Chromebooks accounted for only 1% of PC sales in 2013. Yet, despite its current niche status, Google's operating system is growing in popularity. Late last year, NPD said Chromebooks accounted for about one-fifth of all laptops sold in commercial channels, while The Wall Street Journal noted that Chromebooks are beginning to dominate educational institutions.

Microsoft pushes back
With its primary market under siege, Microsoft has gone on the offense, launching a series of ad campaigns slamming Google's operating system and altering the way it sells Windows. Last month, Bloomberg reported Microsoft would cut its Windows licensing fee by 70% on PCs that retailed for less than $250 -- around the average price for a Chromebook.

But that raises an interesting question: What is behind the growing demand for Google's operating system? Is it just an inexpensive way to access the Internet, a retread of the once encompassing netbook fad? Or is it something more?

The Chromebook 2 suggests Samsung believes there's more to Chromebooks than their price tag. At $399, Samsung is coming quite close to the average price of a Windows laptop (historically $500-700), and while there are few $200 Windows laptops, there are many that sell for $400.

More than just a cheap laptop
All of them can run local software, including Microsoft Office, giving them far more functionality than Samsung's similarly priced Chromebook. But as the owner of a Chromebook Pixel, I can attest to the appeal of Google's operating system.

Although it's limited in what it can do, what it does do, it does exceptionally well. Unlike Windows PCs, Chromebooks are virtually impervious to malware, and never require the user to install software updates. They're stunningly easy to use, with a single, easily navigable interface. If all one needs to do is browse the Internet, check email, and access cloud-based software, Chromebooks are a better bet than PCs running Microsoft Windows -- even when they cost the same.

Samsung's willingness to offer a more expensive Chromebook suggests that it's come to a similar conclusion. If the Chromebook 2 sells as well as its predecessor, it will prove that the demand for Google's Chrome OS extends beyond the budget-constrained.

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