Last week Google made a preemptive strike against Microsoft, revealing details of its Chrome OS months before that product reaches its near-infinite beta release.  The idea is simple: who needs a big OS if you are doing everything in a browser?  It’s a huge threat to Microsoft and Apple.  But then it struck me I’ve heard this all before, so I went back and found this video clip from my show Triumph of the Nerds, circa 1996, where Larry Ellison predicts the future, not knowing he was actually describing 2010.

The biggest news was simply that Google was finally taking Microsoft head-on. The rest of the news, at least to me, was that Microsoft should be worried, very worried.

While we’re talking about operating systems here, Google’s real target is Microsoft Office.  Redmond makes money from Windows but makes a lot more money from Office, its productivity app monopoly.  Google already has its Google Apps pitted against Office, but Brin and Page know they won’t crack Office’s hold on corporate America without addressing the Windows flaws that effectively underlie both Office and Google Apps in their current incarnations.  That’s where the Chrome OS comes in.

The Chrome OS strategy comes down to services, servers, security, and an iTunes-like app store (this latter part having been missed by nearly all the pundits).

An operating system with a user interface done through a browser is a completely practical idea and a vastly superior way to code User Interfaces than the Windows API.  It wasn’t always so, but now we have Java and Java extensions in the browser, so the UI capabilities are much better.

Remember Google makes its money differently than Microsoft, taking a few pennies here and there.  It is doubtful that either the Chrome browser or Chrome OS will ever cost users anything, but Google will make plenty from providing services and servers that run using these interfaces, with the real gold mine being that app store.

Under the Chrome OS, security is drum-tight so users can’t install unapproved software that might break the OS.  The client is small, light, secure, and easy to support. The back end can be in Google’s cloud or in one of those Google shipping container data centers dropped into the parking lot at a Fortune 500 company.  Either way Google makes money at the expense of Microsoft/IBM/Sun/Oracle.  Larry sure didn’t anticipate that part.

Google will make tons of money from its app store.  Remember that unapproved applications won’t be able to run on the Chrome OS and the best (maybe only) way to find approved apps will be through a Google store as pioneered by Apple with iTunes.  This wasn’t lost on Eric Schmidt during his days on the Apple board.  Through such an app store, Google will get a percentage of all third-party software sales — something Microsoft has never been able to do with third-party Windows apps.  The potential revenue from the app store alone is billions per year.

We know that under the Chrome OS Google Apps will be very secure.  Any tampering will trigger the download of a new and pure OS image.  But will the Chrome OS have enough performance to compete with Microsoft Office?  I think it eventually will, based, for example, on extensions like Google’s recently announced O3D API, which will allow Google Apps and approved third-party apps to grab spare GPU cycles to improve performance.

What’s left to be seen here is whether these improvements will be enough to beat Office or if Google will have to make a standalone (local PC-based) version of these apps.  Only time will tell.

The most interesting part for me will be Microsoft’s response.  This strikes at the very heart of Redmond’s business success and Microsoft will not take it lying down.  Expect thermonuclear warfare.