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Can Google Profit With the Chrome OS?

By Contel Bradford

Google has the whole world buzzing in anticipation of its new operating system. The Chrome OS is slated to be released in the second half of 2010, but developers will be able to get their hands on the source code later this year. This is all made possible by the fact that the platform is open source and built on the Linux kernel. According to some observers, the Chrome OS is set to give Apple and market leader Microsoft a nice run for their money. But if the source code is open to developers, and the system is absolutely free to consumers and possibly OEMs, how does Google plan to generate revenue from its cloud-powered Chrome OS?

A Bigger Advertising Model?
Some of the more obvious options Google has for monetizing its operating system is through advertising and subscription-based services for the various applications running on the platform. This seems like a given when considering that the majority of the company’s $20 billion in annual revenues comes from display advertising.

Although the ever optimistic Google CEO Eric Schmidt appears to be unsure of how the search engine king will transform Chrome into a revenue generator, he doesn’t seem to be too pressed about the issue either. “We do things that are strategic because they get people to use the Internet in a clever way. They will search more, watch more on YouTube, and we know our ads work in a targeted way. We do not require each and every product to be profitable or not profitable,” he says. Schmidt also hinted that Chrome could possibly extend profits to developers who elect to build on the platform. “If our platform strategy works, and there are many users of Chrome OS, there will be many opportunities to build profitable services on top of the platform. That’s been true for all of the successful platform plays in the history of computing. If it’s not successful, then it won’t really matter.”

Piggybacking off Schmidt’s sentiments is Mark Mahaney, analyst and director at research firm Citi Investment Research. In a recent note to clients, he remarked, “We neither expect the Chrome OS to generate material revenue near-term, nor do we expect Google’s Chrome OS investments to materially impact its current cost structure. We wouldn’t be surprised if Google gave the Chrome OS to OEMs for free, as they currently do with Android and their mobile partners.”

The Most Likely Solution

The company hasn’t clearly defined how it will make money with the new open source operating system, but when considering Chrome’s overall goal, it becomes clear where Google generates revenue: anywhere it wants to on the web. While not exactly intended to be a cash machine, the Chrome OS is designed to keep users on the web, which is good news for Google. With an entire operating system based on getting users on the web faster and more efficiently, every web-based game you play, every YouTube video you watch and every email message you send is endless potential revenue for Google. Through effective targeted advertising and quality apps, Google stands to profit tremendously from virtually every person that uses Chrome in one way or another.

The Big Challenge for Google
By nature, Google Chrome has tremendous potential as a cash machine. However, not even its top executives are making any promises, perhaps realizing that putting an end to Microsoft’s dominance on the PC market may not even be possible. The success of Chrome will largely depend on the speed and efficiency of its applications, which ultimately puts a lot weight on the shoulders of the development community, who will need to see some benefits before signing on board.  Just being a part of the Chrome project will not be enough. Google may not be focusing on a big pay off but the application writers will definitely need to make money for their efforts.