Google: It's Still About Search

Includes: GOOG, INTC, MSFT
by: Larry Dignan

Google’s Chrome OS, which generated an extreme amount of hubbub, is a defensive move as much as it is an offensive one, say analysts. Nevertheless, Google’s move will have a wide impact on the industry.

Analysts were handicapping Google’s move into operating systems on Thursday and some of the ripple effects they cooked up were interesting (Techmeme). Here are the more notable comments from the research notes:

Chrome OS a boon for ARM chip makers? Goldman Sachs analyst James Mitchell writes:

If successful, Google’s entry into the market could represent a threat to Intel and x86, while opening the door to ARM-based competitors including Qualcomm, Texas Instruments, Freescale, Nvidia, Marvell, and Broadcom. In our view, Intel’s dominance in the PC market has partly been predicated on the lack of viable substitute products for Microsoft’s Office applications. While Linux and other operating systems have challenged Windows in the past (most recently in netbooks), we believe these attempts have failed because of the lack of adequate productivity software that is acceptable and familiar to consumers. More specifically, our recent checks with PC OEMs suggest that the adoption of ARM-based solutions in notebooks and netbooks has been limited largely by the lack of functional Office-based solutions running on ARM-based platforms, as the level of Office functionality on Windows CE and Windows Mobile has been limited at best. To the extent that Google is successful in driving the adoption of Chrome OS and improving its suite of productivity applications, we think this could have significant implications for the semiconductor ecosystem…

For Intel, the success of the Chrome OS could translate into modest market share loss and/or margin compression in the company’s core PC market, as the company could be forced to compete with a number of new, low-cost entrants which are running at a 40%-50% gross margin (versus Intel’s estimated gross margin for Atom of 60-70%).

Google Apps will be a key to success. The Chrome OS could be an avenue to boost use—and possibly revenue—of Google Apps. That said the popularity of Google Apps will directly impact the popularity of the Chrome OS, says Mitchell. To the extent that Google Apps are seen as a substitute for Microsoft Office the more likely the Chrome OS is adopted. That’s a key point.

Stifel Nicolaus analyst George Askew writes:

In our opinion, the adoption of the Chrome OS could speed the adoption of the company’s Google Apps web-based software.

However, let’s not get carried away. Today, Google Apps just isn’t a complete substitute for Microsoft Office. Google says that its apps beyond email and calendar need work and so do enterprises. Meanwhile, enterprises are wary of cloud apps and no one has tolerance for incompatibilities for that stray spreadsheet.

Also see: All Chrome OS posts

It’s still about search. A few analysts noted that Google may be trying to play a little defense. By launching an OS, Google is hoping to prevent Microsoft (NASDAQ:MSFT) from using Windows to promote Bing. Piper Jaffray analyst Gene Munster says:

In theory, allowing/encouraging consumers to spend more time using applications on the web, like Google’s Gmail and Docs products, consumers will be exposed to more advertising, through which Google intends to monetize.