First, this announcement does not affect Microsoft's core business in any meaningful way. Netbooks are the hottest part of the market right now, but they are still a tiny portion. By definition, they are not gaming machines or business workstations. That leaves the majority of the market to Microsoft. In fact, the netbook market is one that Microsoft is still trying to figure out. Currently they are selling Windows XP for netbooks and only charging a few dollars (the rumor is $15). They floated the idea of having a stripped-down version of Windows 7 for netbooks then relented. Either way, this is not their taditional market and they do not make much money on it. Losing it would not affect them except in a pyrrhic way.
So, Google is not a real threat to Microsoft. What about the other way - can Google establish itself on the netbook?
The first generation of netbook was based on the Linux operating system which is what Chrome OS will use. As netbooks matured, the market switched to Windows XP. There are several reasons for this and Google can learn from them.
The first netbooks were based on the ARM chip which Microsoft does not support. That made Linux the only choice. Intel introduced the Atom chip for low-powered applications and most netbook makers switched over. At the same time, Microsoft made several concessions, allowing netbooks to run Windows XP instead of Vista and reducing the licensing fee. This made Windows a viable choice.
The Linux that was being offered on the netbooks was not that attractive. since it is a new operating system, the makers wrapped it in a gui that tries to simply everything. This reenforced the fact that Linux is not Windows. When presented with an alien gui or the familiar Windows, most customers went with Microsoft.
Google's lesson here is that it is possible to make an operating system too friendly. The transition from Windows XP to a full-featured version of Linux such as Ubuntu is no worse than the transition from XP to Vista. More important, once you fire up your browser, there is virtually no difference. Google seems to have figured this out. They are promising that the operating system will not get in your way.
Google is promising an operating system that will boot fast and be virus-free (good luch with that part) and that will mainly exist to run the browser. Everything that you really need will be web-based.
There are skeptics:
But it's not just Office that will keep Microsoft's hold on the PC market. Can you replace Active Directory with a web app? Is there a site I can visit to connect to my office's shared printer? What do you mean World of Warcraft doesn't run in the browser? How do I play a DVD in Google Chrome?
This argument misses a big point - people do nto buy netbooks to connect with active directory or an office's shared printer. You cannot play World of Warcraft on a netbook and they do not come with a DVD player. Netbooks are used by people who want small, light PCs that are easy to carry around.
I will add that I have an Aspire One netbook. I installed Ubuntu Linux on it with a dual boot. I can switch between the two operating systems and do about everything I need in either. I can even play DVDs on an external drive in Linux.
This brings me to a final point. With Ubuntu I had to load several drivers and plug-ins. Some of these are deliberately kept out of the distribution because of licensing restrictions - you have to pay a license fee to distribute them. Presumably Google is big enough that they can cut a deal on these packages so that Chrome OS will come with everything that you need, out of the box.
If they manage that then they could capture a significant portion of the netbook market. If they can convince some of the makers to switch back to the ARM chip for extended battery life then they will have that portion of the market to themselves.
None of this is a threat to Microsoft but it could affect Apple by offering a second alternative to Windows.
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