Google, which already offers a suite of e-mail, Web and other software products that compete with Microsoft, said on Tuesday it would launch a new operating system that will initially be targeted at netbooks.
Microsoft shares fell 1.4 percent to $22.22 in early Nasdaq trade on Wednesday. Google shares rose 1.2 percent to $401.36.
Called the Google Chrome Operating System, the new software will be in netbooks for consumers in the second half of 2010, Google said in a blog post, adding that it was working with multiple manufacturers.
Netbooks are low-cost notebook PCs designed for Internet surfing and other Web-based applications.
"It's been part of their culture to go after and remove Microsoft as a major holder of technology, and this is part of their strategy to do it," said Rob Enderle, principal analyst at Enderle Group. "This could be very disruptive. If they can execute, Microsoft is vulnerable to an attack like this, and they know it," he said.
Google and Microsoft have locked horns over the years in a variety of markets, from Internet search to mobile software. It remains to be seen if Google can take market share away from Microsoft on its home turf, with Windows currently installed in more than 90 percent of the world's PCs.
The news comes as executives from the world's biggest technology and media companies, including Google and Microsoft, gather in Sun Valley, Idaho for an annual conference organized by boutique investment bank Allen & Co.
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