With OS project, is Google over-extending itself?

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IDG News Service - Google's decision to build a PC operating system could be a master stroke or a colossal blunder, depending on whether the company has the resources that such an ambitious and long-term undertaking will require.

Google plays in a variety of extremely competitive markets, serving a broad scope of demanding customers and partners. Although developing an operating system could yield big rewards, it could also distract the company and make it more vulnerable to rivals.

Of chief concern is Google's continued reliance on a single type of advertising for most of its revenue, despite efforts over the years to diversify its business.

Google still makes most of its money from search pay-per-click text ads, a market that it dominates but where loyalty from consumers and marketers is thin, making the company vulnerable to the development by a rival of a significant technology breakthrough.

In short, if someone built a better search mousetrap -- as Yahoo, Microsoft, Ask.com and a host of smaller players are trying hard to do -- Google would suffer a sudden drop in search usage and consequently advertising, crippling its finances.

Google's attempts to build alternative revenue streams from display advertising remain nascent, despite the costly acquisitions of ad services provider DoubleClick and video-sharing leader YouTube, two properties Google considers key to this effort.

Bold initiatives to provide print ads to newspapers and spots to radio stations both failed. The company continues its attempts to build a TV advertising business.

Google executives are the first to admit that the company dominates the Internet search market because it toils long and hard every day to continually improve its engine technology.

Yet, not content with waging battle every day in search, Google also provides enterprise search and business collaboration software, competing against the likes of Microsoft, IBM, Cisco and Autonomy, and trying to win over business managers, IT managers and CIOs.

As if that were not enough, Google has set out to court Web application developers by opening up APIs to a wide variety of its consumer and enterprise products.

In addition, Google maintains many non-search services for consumers, such as the Orkut social network, photo management service Picasa, Reader feed manager, Knol encyclopedia, Checkout online payment system and the iGoogle personal home page.

In recent months, Google has shut down or stopped supporting several products, including Google Video, Google Notebook, microblogging service Jaiku and mobile social network Dodgeball.

"My feeling is that Google needs to stop announcing things and instead execute on completing them," said Rebecca Wettemann, an analyst at Nucleus Research who focuses on enterprise software.

For instance, Google could make many enhancements to Apps, its hosted collaboration and communication suite for businesses, which just yesterday had four key components exit the beta, or test, stage, she said.