Google's Chromebook subscription program could seriously pinch Microsoft enterprise licensing revenue. The $28 per month per user fee is bargain-basement pricing compared to what businesses now pay Microsoft for software and OEMs for supporting hardware. Google could easily take $1 billion a year in software revenue from Microsoft, says one licensing expert, with the number substantially growing over several years.

Earlier today, Google announced June 15 as launch date for Chromebook, which will initially be available from Acer and Samsung with 11.6-inch or 12.1-inch displays, respectively. Prices start at $349, for notebooks with Intel Atom dual-core processors and limited local storage, running Chrome OS. But there is another acquisition option -- a monthly subscription for business and education markets. School price is $20/month per student and for businesses the aforementioned $28/month per user. The subscription price requires businesses to make a 3-year commitment. Microsoft volume-licensing customers typically also license software for three years, although a 2-year option is available.


Betanews reader DaveN expresses a sentiment I've heard repeated today: "I must be a fossil, relic or a moron, because I completely and totally miss the point of these [Chromebooks]. They're the size and price of a real laptop, but with dramatically reduced functionality. I guess maybe they're for people who only know how to use a web browser but not any more sophisticated software, and who really don't need much in the way of storage." You're not a moron, Dave, but Chromebook is good for something: Providing businesses with necessary computing utility at considerably lower cost than what they pay today.

Google, Microsoft Options Compared

Paul DeGroot, principal consultant with Pica Communications, is an expert on Microsoft licensing. I asked him what most businesses pay for Microsoft software and to compare the value against Chromebook and Google's competing cloud services.

"The best comparison would be the Pro Desktop Platform that Microsoft sells to Enterprise Agreement customers," he explains "There's enough overlap here that anyone who went with Google would not go with the Pro Desktop. Microsoft sells millions of these, and they cost somewhere between $300 and $375 a year, depending on volume. They include: Windows upgrade (currently to Windows 7 Enterprise), Office Pro PlusCore CAL Suite (CALs for Windows, Exchange, and SharePoint servers), and a client management license for System Center Configuration Manager."

The math is interesting. Chromebook subscription would be $336 a year, plus another $50 for Google Apps (as I write, it's my understanding that the cloud service isn't included in the laptop price). That works out to $1 a year more than DeGroot's high number. However, he is being conservative in the estimate, and Google's price includes extras, such as the hardware, which Microsoft doesn't provide. That hardware isn't just the employee's PC but dozens, in some cases thousands, of servers that must be purchased, housed, cooled, powered and maintained. Google's cloud would assume most of the per-user infrastructure costs -- money businesses could invest elsewhere.

Even a fairly large business could suffice with one server for managing its Chromebooks. No Exchange, SharePoint, Windows or other Microsoft server products would be necessary. There would no longer need to be costly software qualifications or deployments, since browser-based apps, whether from Google or third parties, would be updated automatically -- and no additional infrastructure would be necessary for deployments. The potential infrastructure savings per user is in the thousands of dollars.

Google's subscription goes further, providing support services, instant cloud service/applications and Chrome OS updates and free laptop upgrades, further removing IT management headaches and costs and assuring that all employees have the newest software. Chromebook subscriptions would do away with the software fragmentation so common in enterprises today -- Office 2003 here, Office 2010 there and Windows XP everywhere.

From that perspective, including hardware and other costs, $376 a year for Chromebook and Google Apps is a helluva bargain, and one likely to take money out of Microsoft's purse. It's my understanding that both subscriptions require minimum 10 Chromebooks, which shouldn't be a problem for enterprises or schools.

Today, at Google I/O, the search and information giant announced offline capabilities that increase Chrome OS' business appeal. While Chromebook is best when constantly connected, Gmail, Google Apps and Calendar will be available offline, and there is a new file manager and media player. Additionally, third-party Web apps can be available offline, should the developer choose to enable the capability. Meanwhile, while not functionality equivalent to Microsoft's Office-Windows-server software stack, Google's cloud meets the "good enough seal of approval" -- at least in my testing.

How Much Could Microsoft Lose?

So what's the exact risk to Microsoft? Sixty percent of Business (e.g., the Office) division revenue comes from voluming licensing agreements -- the ones most at risk when compared to Google Chromebook/cloud app offering. It's about half for Server & Tools and 20 percent for Windows and Windows Live. Office and Windows are Microsoft's cash cows, generating $9.7 billion in revenue and $5.4 billion in profits during fiscal 2011 third quarter, ended March 31.

"About 80 percent of the Pro Desktop Platform revenue is allocated to those two products," DeGroot says. "So for every customer who pays Google $50 a year for Google Apps, Microsoft could lose at least $300 a year in platform revenue. Considering that Microsoft has at least 40 million customers licensed that way, if Google gets 3 million customers onto its system, which isn't a whole lot, Microsoft loses $1 billion." However, "the Microsoft number is conservative," DeGroot emphasizes, "because I'm basing this on the lowest rate, which only companies with greater than 15,000 computers get."

The Google Apps versus Pro Desktop Platform licensing scenario DeGroot sketches out isn't new. However, Chromebook creates incentive for enterprises to consider their options differently and "could accelerate movement to Google Apps," he says.

Microsoft led the enterprise software market in 2010, with $54.7 billion in revenue -- that was up 12.5 percent, according to Gartner. The total market generated $244.6 billion, with Microsoft's market share 22.4 percent. The company doesn't need to lose a lot to Chromebook and Google Apps to hurt, with the bigger blow to perception than to the bottom line, at least initially. "It could take a little off the top and raise doubts about the sustainability of Microsoft's crown jewels in the long run," DeGroot says.