Talk about awkward: A chance encounter between Microsoft messiah Bill Gates and Google head-honcho Eric Schmidt just days after Google announced its intention to go after the foundation of the Microsoft empire: Windows.

Gates –defender of the Windows faith – was confronted by reporters at last week’s Sun Valley business executive summit about rival Google’s plans to launch an operating system to compete against the beleaguered Windows platform. Sweater-wearing Gates naturally declined with a polite “no comment.”

But no sooner than the words crossed Gates’ lips did Google CEO Eric Schmidt grab him by the elbow and said, “It would be better if you don’t make that comment.”

Gates really didn’t have to make a comment; he’s letting his legions do it for him. At the Worldwide Partner Conference going on right now in New Orleans, Microsoft is making a raft of announcements about its cloud computing strategy, Windows 7 and Azure releases and, of course, free online Office 2010 to compete against Google Apps. Channel Insider’s team at WPC reports that Microsoft partners are abuzz about the announcements, but no one is even uttering the “G word.”

The feud between Microsoft and Google is the stuff that journalists and analysts relish. In Microsoft you have a company that redefined the technology market more than a decade ago only to reach a point of maturity that makes it seem lagging in innovation and sluggish to respond to changing market dynamics. In Google, you have an upstart that seemingly can do no wrong while operating under conventions that are completely foreign to the IT old guard. It’s a clash of the titans, at least on paper.

It should come as no surprise to anyone that Google is developing an operating system, and that OEM vendors such as Hewlett-Packard and Acer are racing to use the application on their new machines. The new OS, due out on consumer machines by the end of 2010, will likely be a merger of Linux and the Chrome browser. The Chrome OS, Google says, will be designed for quick boots and support of Web-based applications.

When Google released Chrome last year, the IT world was agape at the prospects of Google taking on Microsoft’s browser dominance and, perhaps, succeeding where FireFox and Safari have fallen short. Some even relished the prospects of Google doing to Microsoft what Internet Explorer did to Netscape. But Chrome was never about building a more perfect browser; it was always an operating system. And Android, Google’s mobile phone platform, is essentially the same; an experiment in operating systems. The experience Google gained over the last year with Chrome and Android is more than likely being pressed into service on the OS project.

Not to be out done, Microsoft will release details of its strategy for Azure, its online operating system. At WPC, solution providers and independent software vendors will get long awaited details on development opportunities, services strategies and pricing structures around the online services platform. When ready for primetime, Azure and Chrome will look very similar.

The days of heavy client-side operating systems aren’t over, but numbered. A survey by ISV and Microsoft partner ScriptLogic found that six in 10 businesses are not planning to upgrade to Windows 7 when it becomes generally available later this year. Again, no surprise, since most businesses wait for SP1 before committing to a full refresh. But, as we saw with the disastrous experiment known as Vista, businesses from Fortune 500s to Main Street shops are loathed to spend money on operating systems that provide too much functionality and not enough value.

For Microsoft, the migration to the cloud could prove particularly thorny. CTO Ray Ozzie, heir to Gates’ mantle, has already stated that prices and margins for cloud-based applications will be lower than on-premise solutions. Microsoft will need to figure out a way to replace the billions of dollars it currently makes off Windows, and satisfy the demands for profitability by partners.

Google doesn’t necessarily have an easy road ahead, either. The question that must be asked is why the undisputed search champion is getting deeper into application development. It’s probably because search isn’t the business of the future. Pressure is beginning to mount against Google for its free distribution of content that it doesn’t create. And maintaining dominance in search isn’t easy, as Microsoft proving with its sudden surge with Bing.

The benefit that Chrome and Azure may ultimately provide is a diminished dependence on the operating system for supporting applications. Users – consumer and business alike – want ease of use, just enough functionality and performance, and those characteristics aren’t necessarily synonymous with the heavy footprint of Windows. And netbooks—the magical devices for which Chrome is intended—don’t need the big trappings of Windows to connect users to Web-based applications. 

Ultimately, these lightweight operating systems will provide new service opportunities for solution providers who will be called upon to integrate new applications, customize deployments and, in some cases, retrofit older machines with the OSes to breathe new life into what we currently consider obsolete PCs. Chrome, Azure and still unborn lightweight operating systems may prove the future platform for solution provider growth.

Lawrence M. Walsh is vice president and group publisher of Channel Insider. Read his research reports at [CI] Perspectives.

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