What Google Inc.'s Chromebit Means for Microsoft Corporation

By Markets Fool.com

Google recently introduced the Chromebit, a $100 HDMI dongle that converts any TV or monitor into a Chrome OS computer.

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The Chromebit sports a quad-core ARM-based Rockchip processor, 2GB of RAM, 16GB of storage, and a USB 2.0 port. The device connects to the Internet and peripherals via Wi-Fi and Bluetooth. This certainly isn't the most powerful PC that can be plugged into a TV, but it's definitely one of the most portable.

Google's Chromebit. Source: Google.

Packing a PC onto an HDMI dongle isn't a new idea. Google's Chromecast, which runs on a slimmed-down mix of Chrome OS and Android, offers simple media streaming features for $35. Chinese companies evolved that idea into more powerful Android minicomputers last year, and the upcoming Intel Compute Stick does the same thing with Windows 8.1 for $150.

Nonetheless, Google believes the Chromebit will be popular among small businesses and emerging-market customers thanks to its low price and portability. Should Microsoft -- which still controls over 90% of the global PC market with Windows -- be concerned about those ambitions?

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Google's game plan
Google's Chrome OS strategy is simple: launch a free alternative to Windows that will let OEMs sell cheap Chromebook laptops, then tether those users to its cloud-based ecosystem. That idea is catching on -- research firmGartnerexpects global Chromebook sales to nearly triple from 5.2 million units in 2014 to 14.2 million by 2017. However, Chromebooks still represent less than 2%of the 318 million PCs shipped worldwide last year.

Microsoft responded to the rise of Chromebooks by reducing license fees to let OEMs launch cheaper Windows laptops, includingHewlett-Packard's $200 HP Stream 11.6. Cheaper $149 Windows laptops are also reportedly on the horizon. In addition to nullifying Chromebooks' price advantage, Microsoft is bundling free one-year Office 365 memberships with these devices to pull users away from Google Drive's productivity tools.

With Chromebooks losing their disruptive edge, Google started looking for other ways to spread Chrome OS beyond laptops. That's where the Chromebit -- which costs less thana new Windows 8.1 license -- comes in. It's a quick and cheap way to instantly deploy all-in-one PCs. Other companies, such as Asus, will launch their own Chromebit devices over the summer as well.

Microsoft has the tools to fight back
Unlike its situation in the mobile market, which Google dominated by spreading Android across a wide array of handset makers, Microsoft has plenty of ways to defend the PC market against the search giant.

First and foremost, the Intel Compute Stick's $150 price tag suggests that cheaper Windows HDMI dongles could reach the market soon. Given the choice between a Windows and Chrome OS dongle at the same price, many consumers and businesses will likely choose the Windows device for its backward compatibility and familiarity. Moreover, a Windows PCs can easily run any Chrome apps directly from the Chrome browser.

Intel's Compute Stick. Source: Intel.

Meanwhile, Microsoft will offer most phones, tablets, and non-enterprise PCs a free upgrade to Windows 10. It is also offering free versions of Windows 10 for cheap board computers such as the $35 Raspberry Pi 2 andQualcomm's$75 DragonBoard 410c. This means sub-$100 Windows 10 PCs, albeit not in dongle form, could also reach the market soon.

Why the enterprise market matters
This isn't the first time Google has tried to push Chrome OS into the enterprise market.

Last year, it targeted small businesses with its "Chromebooks for Work" program, which added useful enterprise features such as single sign-ons, a Windows remote desktop, and an information-technology administrator's console for managing multiple Chromebooks. That expansion complements "Android for Work," a similar push that capitalizes on the spread of "bring your own device" rules across multiple industries.

Although Chrome OS and Android are a poor fit for larger companies that have been tethered to Microsoft's ecosystem for years, they are appealing to start-ups that rely heavily on cloud-based services. In other words, Google is establishing roots in younger companies while Microsoft dominates the older ones.

The Foolish takeaway
In my opinion, Google's Chromebit might help Chrome OS gain ground outside of Chromebooks, but it isn't a disruptive threat to Microsoft. Microsoft already has similar products in its pipeline, and at the same price, Windows-based dongle PCs will likely remain more appealing than their Chrome OS counterparts.

The article What Google Inc.'s Chromebit Means for Microsoft Corporation originally appeared on Fool.com.

Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Gartner, Google (A shares), Google (C shares), and Intel. The Motley Fool owns shares of Google (A shares), Google (C shares), and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.