Chromebook

What does the future hold for Google Chrome OS?

March 12, 2014: 9:42 AM ET

The rise of the inexpensive Chromebook prompts new questions about Google's niche operating system.

By David Nield

140312093909-google-chromebook-chrome-os-home-screen-620xa

FORTUNE -- You could be forgiven for having forgotten that Google (GOOG) has its own desktop operating system, launched back in 2009. Championing a vision of a future where all data and applications live in the cloud, Chrome OS has struggled to make a dent: It accounts for only 1% of the PC market as of January 2014, according to figures from IDC. Net Applications, another market research firm, pegs global usage of Chrome OS at somewhere south of a single percent.

Yet small signs of growth are appearing. Chromebooks -- the stripped-down notebooks that run Chrome OS -- are starting to show up regularly in the list of bestselling laptops on Amazon (AMZN). By this summer, all the major laptop manufacturers other than Apple will have Chromebooks on sale, including Dell, Acer, Asus, Sony (SNE), HP (HP), Toshiba, and Lenovo. And perhaps most tellingly of all, Microsoft (MSFT) has taken the time to disparage Chrome OS directly. If companies turn to Google's low-cost, low-maintenance laptops in significant numbers, it will cause some serious headaches in Redmond.

Then there are figures from the NPD Group, which show Chromebooks claiming a 9.6% share of the business sector at the end of 2013. That's higher than sales of Apple laptops, Windows tablets, and Android tablets in the same space. NPD's report noted a fourfold increase in the number of Chromebooks pushed through commercial channels in the U.S. during 2013: 1.76 million compared with 400,000 in 2012. In short, Chrome OS remains just a dot on the horizon as far as the bigger picture is concerned, but it's a dot that's growing.

MORE: Chart: Acquisitions by Apple, Amazon, Google, Yahoo, Facebook

The Chromebooks and Chromeboxes that run Chrome OS offer little more than a web browser and a sliver of space for local files. While this makes them dependent on Internet access, online apps, and cloud storage, it also means they are inexpensive to deploy and easy to maintain. Security and software updates are effectively handled automatically by the operating system, and backups are handled remotely on the web. Significantly, Google has just announced a partnership with the virtualization vendor VMware (VMW), enabling Chromebook users to access legacy Windows applications through a browser tab.

NPD's Stephen Baker attributes the rise of Chromebook sales to increased availability, lower prices, improved form factors, and a better use case: "Chromebooks are now marketed as being more strongly equivalent to a traditional notebook PC and offering capabilities that aren't only tied to the web," Baker told Fortune. "Consumers have been looking for low-cost web access and computing devices for quite a while, and the Chromebook fits those requirements."

IHS analyst Craig Stice agreed that a low price was critical to the growth of Google's lightweight operating system. "The price alone is a big attraction to these systems, which are in the $200-plus range," he said. "As well, they came at a time when the low-end priced PC and netbook market had disappeared. The notebook-like form factor of a Chromebook with the attached keyboard aids efficiency and offers what a media tablet cannot provide. The cloud-based storage creates a much easier management structure for small IT departments, and the ease of use makes them a blessing for teachers."

MORE: Why Google should acquire Tesla

For businesses heavily invested in Microsoft Office and proprietary desktop software, Chromebooks are a tough sell. Yet as Forrester analyst JP Gordon noted in a July 2013 blog post, they do have the opportunity to "fill a legitimate computing niche" for companies willing to segment their workforce and switch to Google Apps, at least in part. The benefits of Chrome OS cited by Gordon include high uptime, low service costs, and scalable deployment of new applications and content. The ease of collaboration provided by programs that live online is another important factor.

When Chrome OS first appeared, industry commentators struggled to see the appeal of such a limited, online-dependent platform. With Windows 8/8.1 floundering and Apple (AAPL) laptops remaining at the premium end of the market, the simplicity of Chrome OS has suddenly become a strength: "I am now recommending Chromebooks instead of Windows laptops for civilians," wrote ZDNet's David Gewirtz in January.

Overall, analysts remain cautious about Chrome OS's prospects for gaining further ground in 2014. "For business, we don't think Chromebooks are quite yet ready to compete fully with the PC in the workplace," NPD's Baker said. "Their success to date in B2B sales has been focused on schools and government organizations where some of the specific benefits of Chrome OS -- easy to manage, multiple sign-ons, low maintenance and acquisition costs, compatibility with other Google services -- are an important driver."

MORE: Google Capital comes out of stealth with third investment

"The announcement of the partnership with VMware to run legacy Windows will certainly make a Chromebook potentially more attractive to the commercial markets," Stice added. "They seem to be adequate low-cost devices for scenarios where connections are always available, such as the educational markets or in SMBs that are already heavily cloud-based. Take them out of that environment, and they are challenged by standard full performance PCs that can run Microsoft Office natively and have greater local storage."

While Chrome OS take-up may remain low for the foreseeable future, Google will be pleased to have finally grabbed the attention of a wider audience, as well as its main rivals. It certainly won't be giving up on Chrome OS: Its new Chromebox for Meetings product wraps Google+ Hangouts video calling, Google Apps, and high-definition video and audio in a turnkey $999 setup for virtual conferences.

What's more, the company has a beachhead on millions of competing computers across all sectors of the market. The Chrome browser for Windows, Mac, and Linux is installed on 16.22% of machines globally, while the Start screen version of Chrome is effectively Chrome OS running on Windows. What we can be certain of is that web apps will become more powerful at the same time as high-speed Wi-Fi becomes more ubiquitous -- which is all good news for one of Google's most daring projects to date.

Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.