While we're on the subject of Google competing with Microsoft, let's consider the long-standing rumor that Google will unveil its own branded PC, and take on Microsoft on its own turf.
On one hand, this strategy is rife with problems. Google is primarily a software company, and not many software makers have made the transition to hardware. (Microsoft is one of the few exceptions, with the XBox.) It could also prove to be a mistake of the type repeated over and over again by would-be Microsoft competitors who were run over by Big Redmond like possums on a Texas highway. The PCs will need a new operating system, which means Google will switch from competing on its own ground (search) to competing with Microsoft against its core strength (operating systems). Who wants to switch from something they know to something they've never tried before?
These are serious problems, and I'm not sure Google can overcome them.
But the other hand is more intriguing. First, Google is much more of a hardware company than people realize. At Stanford, Sergey was known for his ability to tweak servers and get the most performance out of them. Google has built an incredible server farm (John Markoff at the New York Times estimates 450,000 home-built servers, compared to 200,000 for Microsoft), integrated into one giant supercomputer. Analysts have estimated that Google is actually the second-largest server manufacturer in the world. It just doesn't sell them, but uses them all internally. Further, Google could just get some Taiwanese PC maker to build the computers under Google's brand name.
Second, the PCs would need an operating system and a browser. Google works with the Linux crowd and Firefox on those fronts. Linux has never made it on PCs because it is unfamiliar to most of us and generally has an interface only a programmer could love. But if there's one thing Google can do well, it's interface ease-of-use. By avoiding Microsoft's handicap of having to update a DOS-based legacy OS, the machines could be blazingly fast without using the latest microprocessors, requiring fewr upgrades. And without Microsoft software in the machine, they could easily be sold for about $300.
Third, a Google PC could connect people directly to Google's suite of online applications. It would probably be released with a new suite of desktop-like apps. Google could also make some apps resident in the machine rather than online, such as word processing. That program could even use access to Google's servers (say, fonts, a dictionary, thesaurus, grammar checker, etc.) to keep it spare and fast. They could even run Microsoft apps in an emulation mode for those unwilling to switch. That will slow the apps down, but if the rest of the machine is fast enough, it might be the first desktop to make up for that slowdown.
The apps could also be pared down to be easy for newcomers, and could dump many of the features that most people don't use in Microsoft's apps, gradually adding those that most people want. It could create several versions of spreadsheets and word processors, targeted at different levels of user sophistication.
All this could give Google the type of customer lock-in that Microsoft enjoys today.
Of course, others have tried similar things in the past. Lotus Development, Sun Microsystems and IBM have tried to get people to switch to Unix or Linux with new apps, to no avail. This would only work if Google can create the interfaces, the ease-of-use and the compatibility with Microsoft apps that others have failed to achieve.
And there are advantages Google enjoys that previous competitors did not have. It is an extraordinarily powerful brand name that people might trust to create a PC designed for the internet age. It would also play into the trend of net-based apps, assuming that really catches on for consumers. Applications could be updated online, making it easier for people to use, and could be free.
Again, it would be a hazardous and expensive strategy, one that could distract Google from its own core strengths. But I hope it happens. It would be a very interesting battle to watch.