Don't Tell Eric Schmidt Google Won't Make Money from Chrome OS

Google CEO Eric Schmidt doesn't rule out ad-supported and subscription services for applications built on Chrome OS, the search engine giant's forthcoming operating system. The CEO handled several questions about Chrome OS, designed for cloud computing, during the second quarter earnings conference call. Chrome OS is an alternative to Windows and Apple operating systems.

Google's Chrome Operating System, the forthcoming Linux-based platform for netbooks, will be released under an open-source license in 2010, but don't tell Google CEO Eric Schmidt that the company won't make any money off it.

"We do not plan to charge for it, in an open-source form," Schmidt told financial analysts during the second-quarter earnings conference call July 16. "There may be other ways we can make money from it."

For Q2, Google reported a 19 percent profit growth from the year-ago quarter.

Schmidt indicated that while Google hasn't figured out exactly how Chrome OS will make money, some form of ad-supported services or subscription-based micropayments are two options for Google, the bulk of whose $20 billion in annual revenues comes from search advertising.

He also said "people" are experimenting with serving ads within applications as a way to make money. However, he did not tie those comments specifically to Chrome OS, adding that such an infrastructure for ad-supported software services and micropayments has yet to be built.

The lunge and parry exercise between analysts and Schmidt highlighted just how serious Google followers are about Chrome OS, which Google unveiled July 7 as a lightweight, speedy alternative to Microsoft's Windows OS and platforms from Apple and Linux distributors.

Google is also feeling pressure from below in the search engine market, where Microsoft's Bing product is garnering positive reviews from many people who are using it to see how it stacks up versus Google.

But questions about how Google will distribute Chrome OS and make money from its came fast and furious from analysts on the call, eventually exasperating the normally unflappable Schmidt. When asked whether Google planned to forge a business model around royalties, as independent software vendors build application on top of chrome OS, Schmidt brusquely said "Too specific a question. We don't know yet."

"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," Schmidt said. "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."

Schmidt also provided the usual argument about offering free Web services as a justification to lure users online, and then show them advertising. To illustrate how Google feels Chrome OS will play in the market, he pointed to Android's mobile operating system. Android is open source, so Google does not make money from the software itself.

However, he said Google expects some 20 mobile phones based on Android by the end of the year. Ideally, users will use these smartphones to leverage Google Web services, ostensibly clicking on Google ads in the process.

"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 said.

Schmidt was also asked what the distribution model will be for Chrome OS: will it come like today's operating systems, that is pre-installed on netbooks via deals with computer manufacturers, or will it be a platform users will download onto their machines?

Schmidt said the Chrome OS delivery model has yet to be worked out, adding that Google is talking to PC hardware makers of both Intel and AMD ARM chip architectures. These vendors are designing products "that are very exciting that fulfill vision of cloud computing." The primary focus for Chrome OS will be speed of boot computation, as well as the seamless use of Web services for cloud computing.

Indeed, Jonathan Rosenberg, senior vice president of product management at Google, called Chrome OS another bet for Google, noting that a whole new generation of Web-based apps demand faster user experience.

"Once you've got all your stuff online you should be able to open your computer and get there in a matter of seconds," he said on the call, jabbing at Microsoft and Apple.