Chromebooks, the low-end laptops that run on
's Chrome OS, are taking over the world. Research firm Gartner
expects global sales to surge 79%, year over year, to 5.2 million
units this year, then nearly triple to 14.2 million units by
is the leading manufacturer of Chromebooks, with a 65% market
should certainly be worried. Gartner expects global desktop and
laptop sales -- Microsoft's bread and butter -- to fall from
296 million units in 2013 to 262 million units in 2015.
Chromebooks. Source: Google.
Why Chromebooks could put a hurt on Microsoft
Chromebooks are attractive for three simple reasons -- they're
cheap, beefy enough for everyday tasks, and use a free OS loaded
with free apps. Those apps tie into Google's cloud-based
ecosystem, making it a seamless transition for Android handset or
Back in 2006, Bill Gates mocked MIT's $100 laptop, which was
backed by Google and designed for developing countries. Gates was
particularly critical of the device's "tiny screen" and its lack
of a hard disk, according to Reuters. Even though Gates was no
longer Microsoft's CEO at the time, his distaste for lower-end
devices reflects the tech giant's attitude.
Microsoft still believes that high productivity comes at a
high price, as seen with the
Surface Pro 3
, which costs up to $2,000. Its hardware partners echoed that
philosophy with Ultrabooks, most of which cost over $1,000. But
the fatal flaw in Microsoft's plan is that it targets
's MacBooks -- which only account for 4% of the PC market --
instead of the lower-end market.
Under Steve Ballmer, Microsoft believed that it could always
keep customers on a tight leash with Windows and Office. Yet
Google cut that leash with the free Chrome OS, which hardware
makers -- still burned by Windows 8 -- were eager to try out.
Google also launched Google Docs as a free alternative to Office,
which forced Microsoft to introduce Office Online, a free,
cloud-based version of Office.
Microsoft's Surface Pro 3. Source: Microsoft.
When push comes to shove, Google can afford to give away
Chrome OS and apps for free. Microsoft can't. Google uses
Chromebooks the same way it does Android devices -- to generate
revenue from web searches and ads, and to keep users tethered to
its ecosystem. Microsoft, on the other hand, relies on Windows
and Office for 19% and 28% of its annual revenue,
Microsoft Office remains the leader in enterprise, with a 90%
market share. But Gartner forecasts that usage of Google's
cloud-based ecosystem could rise to 50% over the next decade,
thanks to its popularity among students and small businesses. At
least Microsoft is owning up to its mistakes -- COO Kevin Turner
recently announced that Microsoft had partnered with
to launch a $199 laptop to take on Chromebooks by the
Why Chromebooks could save Samsung
While the Chromebook has certainly become a thorn in Microsoft's
side, it could be a blessing for Samsung.
Samsung was one of the first companies to launch Chromebooks
in 2011. Sales were sluggish at first, with only 400,000
Chromebooks shipped in 2012. But in 2013, sales surged to 1.76
million units, according to NPD. If sales really hit 14.2 million
by 2017 and Samsung retains its 65% share of the market, the
company could ship 9.2 million Chromebooks to generate $200
million-$300 million in annual revenue.
That's a drop in the pond compared to the 314 million
smartphones that IDC believes Samsung shipped last year, but
there's a key difference -- Samsung's Chromebook sales are rising
by the triple digits, while smartphone sales are peaking.
Samsung's smartphone shipments of 74 million units -- per IDC
-- last quarter missed market expectations for 90 million units,
despite the launch of its flagship Galaxy S5. The company's net
profit also fell 20% over the prior-year period due to increased
competition from low-cost
Chinese competitors like Xiaomi
. Chromebooks won't solve these problems overnight, but they
could help Samsung become less dependent on its mobile division,
the company's largest business segment, which generates half of
its annual revenue.
The Foolish takeaway
The rise of Chromebooks proves two things -- that the laptop is
far from dead, and customers love cheap laptops running free apps
on a free OS.
If Microsoft doesn't decrease its dependence on paid versions
of Windows or Office soon, new Chromebooks could cause more
losses at its Surface division and convince more Ultrabook
partners to defect. A low-end Windows laptop might help Microsoft
stem the bleeding, but it could be a costly gamble that
cannibalizes its own higher-end laptops, tablets, and hybrids.
Meanwhile, Samsung needs to hold its ground against innovative
if it hopes to grow Chromebooks into a significant source of
revenue to offset declines in mobile devices.
What do you think, fellow tech investors? Will Chromebooks
turn the PC market upside down, or will they eventually lose
momentum and fade away like netbooks after three years of
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Will New Google Chromebooks Wound Microsoft and
originally appeared on Fool.com.
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