In 1995, Netscape founder Marc Andreessen famously claimed that applications of the future would run within a web browser, relegating the role of the operating system - Windows, in particular - to "a poorly debugged set of device drivers." Fifteen years later, we can see that although rich applications such as Microsoft Office are still dominant, the web browser has become a platform that can deliver almost any conceivable type of business or consumer application.
The capabilities of browser-based applications look set to improve even further as the HTML 5 specification becomes ratified and widely adopted. HTML 5 will allow for embedded video and audio without the need for plug-ins such as Flash or Silverlight, and will allow browser applications to access local storage so they can function in a limited fashion even without an internet connection. Currently, browser-based applications intended to perform offline storage must rely on a plug-in such as Google Gears (which Google is depreciating in favor of HTML 5).
For Microsoft, the increasing strength of the web browser as an application platform is almost totally a threat. If users of rich applications - Microsoft Office in particular - migrate to web-based alternatives, Microsoft stands to lose a significant slice of one of its primary revenue sources. Microsoft will attempt to lure users to Microsoft's own web-based alternatives - Office Web Apps - but, even if they succeed, they cannot hope to retain more than a small portion of their traditional Office revenues.
For Google, rich web-based applications are almost total opportunity. Google Applications are the leading web-based alternatives to Microsoft Office, and Google can monetize these through advertising and enterprise subscriptions. Google, therefore, has a strong motivation to improve web browser functionality, and offers its own web browser. The Google Chrome browser provides a browser optimized for Google applications and encourages the adoption of new browser technologies. Google is investing heavily in Chrome, and even using its search monopoly to promote the browser - if you navigate to google.com from a non-Chrome browser, an advertisement for Chrome appears on the otherwise austere search page.
The Google Chrome OS - a Linux-based OS with the Chrome browser providing the user interface and targeted at netbooks - will initially be restricted to browser-based applications. The idea of an operating system that supports only web-based applications may appeal to Google, but remains to be proven in the marketplace. We may recall that the Apple iPhone was originally designed to support only web-based applications, but, once rich native applications were made available they rapidly dominated the platform. The popularity of the iPhone App Store testifies to the preference most users have for a richer application experience.
Regardless of the success of the Chrome OS, the heavy investment in the Chrome browser will likely see it increase in market share - possibly at the expense of Firefox. Five years ago, Microsoft Internet Explorer almost totally dominated the web browser market. Today IE has "only" a 64% share, and Firefox has 25%. If Google Chrome increases in popularity, it will probably take market share away from Firefox rather than IE. Whatever happens, end users will benefit as the capabilities of the web browser continue to advance rapidly.