google-os-liveSchmidt 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.

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.

Most industry observers believe it will take years before the Chrome operating system develops into a serious challenger to Microsoft’s Windows, which runs on more than 1 billion PCs, according to Collins Stewart analyst Sandeep Aggarwal. The Chrome operating system also could put Google into direct competition with Apple.

Schmidt doesn’t see a conflict. He said he doesn’t intend to rescue himself from Apple board discussions about computer operating systems like he does when the directors talk about Apple’s iPhone. Schmidt leaves those talks because Google also makes a mobile operating system called Android.

Some computer makers already are considering using Android as an operating system in netbooks, but some may think Android is better suited for handheld devices. They also think elements of the Android and Chrome systems could eventually merge.

As long as the Internet market is still expanding, Schmidt said he doesn’t view either as serious threats, because Google’s internal studies show those who sign up for Twitter and Facebook tend to use the company’s search engine even more. He also said Google has held discussions with Twitter on a lot of different issues, including getting better access to Twitter’s posts so they will show up more quickly in Google’s search results.

Although Google won’t charge for the Chrome operating system, Schmidt said it could easily pay off by driving down the cost of computers so people can afford to buy more machines and surf the Web more often. Google wants people to spend more time online because it is the biggest seller of Internet ads which is the main source of its more than US$20 billion in annual revenue.