HYPE MEETS REALITY
In theory, Google Inc (GOOG)'s much hyped series Chromebook netbooks have tremendous disruptive potential. Chromebooks will basically come with one program, an internet browser and all other programs or files will be accessed and stored remotely through cloud databases.
The Chromebook model effectively eliminates the importance of personal computer operating systems. Any widespread adoption of this approach would adversely affect O/S players like Microsoft (MSFT) and Apple (AAPL) while boosting prospects for cloud computing names like EMC Corp (EMC) and Amazon.com (AMZN). Investors are excited because if Google succeeds, not only will internet search grow, they could also develop a new revenue stream through a cloud computing segment. But as is often the case with Google, their ambitions may have once again outreached their execution.
CHROMEBOOK REVIEW HIGHLIGHTS
The Wall Street Journal's influential technology reviewer, Walt Mossberg, recently wrote about the Google Chromebook Samsung Series 5 12-inch laptop. While technology enthusiasts will likely cheer Google's innovative fervor, shareholders will likely view the article as cold water. According to Mossberg, "... while the Chromebook is a bold idea that may be a harbinger of the future of computing, it's too limited and buggy today to be the main computer relied upon by mainstream users."
After all of the hype, this is a disappointing start. What may be more depressing for Google shareholders is that the Chromebooks do not really occupy a niche. At 3.3 pounds, the Chromebook is light, but for a 12-inch netbook this is par for course. Secondly, at $430 for the Wi-Fi and $500 for an internet ready version, the company is priced too similarly to tablet devices which have storage space, a more intuitive touch screen interface and a meaningful weight advantage. Or if power is more important than mobility, there are several laptops in that price category that offer substantially more powerful computer processors.
Among other highlights from the review:
- "The Chromebook starts up almost instantly — in 10 to 15 seconds in my tests — much more quickly than most Windows machines."
- "The Chromebook claims very long battery life — a whopping 8.5 hours for the model I tested."
- "Google automatically updates the operating system, so you don't have to deal with manual updates."
- "The Chromebook also crashed on me four times, mostly because of a "memory leak" problem Google says it will fix."
- "It's important to note that when you use a Chromebook you are trusting Google with the privacy and security of your data, and the company has run into occasional issues on both counts."
IMPLICATIONS FOR OTHER COMPANIES
Apple Inc (AAPL) and Microsoft Corp (MSFT) - In the short term, Google's likely Chromebook failure is positive for Apple and Microsoft because it preserves their operating systems businesses which are really the centerpiece of each firm. At Microsoft, this dependence is obvious because of their market dominating position in PC operating systems worldwide. In 2010, the company generated $18.49 billion in revenues from this segment. This is no less true for Apple. While the popular retail device company has a surprisingly small share of global operating system share despite their meteoric resurgence, their operating system is still an important part of their brand and distinguishing feature.
Amazon.com (AMZN) and EMC Corp (EMC) - In the short term, this is a moderately bearish development, but over the long term, further developments in cloud based mobile devices should increase dependency on cloud storage. Amazon's cloud business segment produced less than $1 billion in revenues last year and any substantial shift in cloud usage could provide major opportunities for dominant players like Amazon.com and EMC Corp.
Research in Motion (RIMM) - This company may be a dark horse beneficiary of Google's weakness as well any growing adoption of cloud dependent mobile devices. As Walt Mossberg states, one real issues is the public's willingness to completely trust privacy and security at Google. While some may point to the Gmail's widespread adoption as evidence of the public's willingness to trust Google, we would counter that this willingness is in large part the result of the fact that most individuals have multiple email accounts. Even if they are susceptible to Google's privacy and security limitations, they know that they have the ability to easily change their main email account.
These fears benefit Research in Motion because despite the company's struggles, they still have a solid foundation for security. And as such, any further adoption of cloud dependent devices for both retail and enterprise will likely be an opportunity for Research in Motion.
Google is an impressive company with a dominant hold on a major portion of the technology world, but they are increasingly starting to resemble a baby Microsoft - dominant in a given area, but futile in efforts to expand beyond their specialty. In the near term, investors should ignore the hype surrounding Google Chromebooks.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GOOG, AAPL, MSFT, RIMM over the next 72 hours.