An Operating System for the Cloud

Eric Schmidt, Google's chief executive, said no for six years. Google's main source of revenue, which reached $5.5 billion in its most recent quarter, is advertising. How would the project they envisioned support the company's advertising business? The question wasn't whether Google could afford it. The company is wonderfully profitable and is on track to net more than $5 billion in its current fiscal year. But Schmidt, a 20-year veteran of the IT industry, wasn't keen on shouldering the considerable costs of creating and maintaining an OS and browser for no obvious return.

Finally, two years ago, Schmidt said yes to the browser. The rationale was that quicker and more frequent Web access would mean more searches, which would translate into more revenue from ads. Then, in July of this year, Schmidt announced Google's intention to launch an operating system as well. The idea is that an OS developed with the Internet in mind will also increase the volume of Web activity, and support the browser.

Google's browser and OS both bear the name Chrome. At a year old, the browser holds a mere 2 to 3 percent share of a contested global market, in which Microsoft's Internet Explorer has a majority share and Firefox comes in second. The Chrome operating system will be released next year. Today, Windows enjoys around 90 percent of the global market for operating systems, followed by Apple's Mac OS and the freeware Linux. Does Google know what it's doing?

Going after Microsoft's operating system used to be hopeless. When I covered the company for the Wall Street Journal in the 1990s, I chronicled one failed attempt after another by software innovators to wrest control of the field from Bill Gates ...

So for Schmidt to finally agree to develop an OS suggests less a technological shift than a business revolution. Google's new ventures "are game changers," he now says.

What has changed? Google has challenged the Microsoft franchise, further diminishing a declining force. The latest quarter gave Microsoft the worst year in its history. Revenue from its various Windows PC programs, including operating systems, fell 29 percent in the fiscal quarter that ended in June. Some of the decline stems from the global economic slowdown. But broad shifts in information technology are also reducing the importance of the personal computer and its central piece of software, the OS. In many parts of the world, including the two most populous countries, China and India, mobile phones are increasingly the most common means of reaching the Web. And in the rich world, netbooks, which are ideal for Web surfing, e-mailing, and Twittering, account for one in every 10 computers sold.