Google Inc. is angling to take a bite out of its most powerful rival's core business after years of nibbling at the edges.
In the latest chapter of the escalating rivalry between Google and Microsoft Corp. , Acer, the world's third-largest PC maker, said it will begin selling a slimmed-down laptop computer, or netbook, that will run on Google's Android operating system. The Android laptop will be available by the third quarter of this year.
The move allows Google to begin offering a free alternative to Microsoft's flagship Windows operating system, opening a new front in the ongoing race between the two technology titans by taking a targeted shot at Microsoft's biggest cash cow in the fastest-growing part of the PC industry.
While desktop PC shipments are expected to decline nearly 10 per cent this year, sales of netbooks - which typically cost less than $600 and are designed for simple functions such as Web browsing and word processing - are expected to jump almost 70 per cent this year, according to market research firm iSuppli Corp. More than 80 per cent of netbooks run on Windows and analysts estimate Microsoft charges manufacturers anywhere from $15-$20 (U.S.) for the software. Some of that revenue now could be threatened by Google's free alternative.
Acer's announcement comes less than a week after Microsoft took the wraps off Bing, a revamped search engine designed to erode Google's stranglehold over Web queries and help the world's largest software company grab a larger share of the overall online advertising market.
"This is a classic move of multimarket rivalry where Google is coming and threatening the bread and butter of Microsoft, so Microsoft retaliates by moving in on the bread and butter of Google," said Mihkel Tombak, a professor of technology management and strategy at the University of Toronto's Rotman School of Management.
Android on PCs isn't the first Google creation to offer a free alternative to one of Microsoft's dominant software lines. Android already competed with Windows Mobile on cellphones, while the Web browser Chrome is Google's answer to Microsoft's Internet Explorer.
Now, with Google Docs to challenge Microsoft Office and Android emerging as a new competitor to Windows, Google has taken aim at the two software lines that account for more than half of Microsoft's revenue and about 80 per cent of its profit.
"The problem is not so much Android per se or these other operating systems, it's lower margins on Windows," said Matt Rosoff, a research analyst with Directions on Microsoft.
Microsoft's latest operating system, Windows 7, will be launched Oct. 22 and the company plans to create netbook-compatible editions.
Google's ability to offer Android for free not only puts pressure on Microsoft's ability to charge manufacturers more for Windows software - the $15-$20 it currently bills PC makers for Windows on netbooks is significantly less than the estimated $35 the company charges for full Windows versions included in laptops and PCs - but also allows Google to build market share in a relatively nascent market before Microsoft emerges as the entrenched leader.
"The major problem Google has with that operating system is getting scale," Mr. Tombak said. "The only way to compete with Microsoft is to make a big dent in their market share in operating systems and this is a big move in that direction, so I think Microsoft should be very concerned about this."
For Google, Android is another in a long line of services designed to guide users back to its search engine, where it can serve them ads, thus strengthening its own core business.