Google’s plan to release its own operating system based on its Chrome browser is set to debut next year. According to Google CEO Eric Schmidt, the time is now ripe for a new kind of operating system, and his company’s Chrome is the one he’s betting on. The browser-friendly Google OS will be geared toward computer users who grew up with the Internet, who are interested primarily in surfing the Web, and who have been pummeled into a thrift-driven mindset that’s likely to persist long after the recession is over.

But Microsoft Windows represents slightly less than 90% of the personal computer operating system market, a position it has held for years. Google’s industry ally, Apple, has managed to steal a few percentage points of market share away from Microsoft in the past twelve years under the singular leadership of CEO Steve Jobs. But Windows remains the dominant operating system, more dominant even than Google is in search.

And with the forthcoming release of Windows 7, Microsoft appears to be well-prepared to defend its empire.
It’s hard to imagine a less promising business for Google to enter, especially given that Google plans to give Chrome OS away for free. And Google’s grand plan to shake up the operating system market isn’t made more credible by the absence of any actual programming code or substantive information about Chrome OS.

Yet, the fact that Google has partners that share its vision says something about the shakiness of Microsoft’s position. Acer, Adobe, ASUS, Freescale, Hewlett-Packard, Lenovo, Qualcomm, Texas Instruments, and Toshiba are all working with Google to help it re-imagine the operating system. So too is Intel, as The Register reports.

Google’s decision to target the netbook market may help the prospects of Chrome OS. Although Microsoft has made a concerted effort to push Windows on netbooks to fend off low-cost Linux-based challengers, Google may find it easier to compete in the netbook market because access to cloud-based services and software is more valuable on devices with constrained resources than on high-powered desktop computers.

Nevertheless, CEO Eric Schmidt is still excited for the Internet search leader’s free operating system to debut next year. However, he admits his excitement is a relatively recent phenomenon, having spent his first six years as Google’s CEO trying to convince company cofounders Larry Page and Sergey Brin that developing an operating system to compete against Microsoft’s dominant Windows franchise would be a terrible idea.

Schmidt didn’t think the timing was right and, worse, he didn’t want Google to get into a potentially bruising battle with the world’s largest software maker. His change of heart shows how far Google has come since Page and Brin started the Mountain View, Calif.-based company in a Silicon Valley garage nearly 11 years ago.

Schmidt now believes Google can withstand whatever counterpunches Microsoft might throw as the company sets out to make computers cheaper to buy and more enjoyable to use with an operating system tied to Google’s 9-month-old browser, Chrome.

“They are game changers,” Schmidt said during a 75-minute interview Thursday with a group of reporters at an exclusive media conference in the Idaho mountains.

The operating system, due out in the second half of 2010, threatens to chip away at Microsoft’s market share in the low end of the PC market — the less expensive and less powerful laptops known as “netbooks,” which are becoming increasingly popular among consumers primarily interested in surfing the Web.

Both Schmidt and Page, who accompanied the CEO during the interview, sought to downplay Google’s showdown with Microsoft. It’s also something Microsoft Chairman Bill Gates didn’t want to discuss when he was approached at the same conference by reporters.

Yet Page couldn’t resist taking some veiled shots at Windows. Without mentioning Windows, he suggested Microsoft’s operating system is becoming archaic as people spend more and more of their computer time in a Web browser.

“The way we think about it is if you are living your life online, maybe you don’t want everything [on computers] that came from Eric’s generation,” said 36-year-old Page as he smiled at the 54-year-old Schmidt.

Page said he will consider the operating system a resounding success if people don’t realize what’s controlling their computers.