Ultra-low prices on portable computers are nothing new, and in fact have increasingly become the norm since the debut of netbooks–small and light ultraportables that are virtually defined by their low cost. However, there are some strong reasons to believe that Microsoft’s (MSFT) upcoming Windows 7 operating system, in addition to new types of Linux-based portables, could help drive profit margins for hardware manufacturers to surprising new bottoms.

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Google Chief Executive Eric Schmidt said Thursday evening that, for six years, he resisted the idea of building what became the Chrome browser and (soon) operating system, before succumbing to the enthusiasm of Google (GOOG) Co-founders Sergey Brin and Larry Page.

In a wide-ranging on-the-record press conference, Messrs. Schmidt and Page described the origins of the combination browser/operating system.

“At the time, Google was a small company,” Mr. Schmidt said. “Having come through the bruising browser wars, I didn’t want to do that again.”

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Microsoft (MSFT) Chairman Bill Gates and Google (GOOG) CEO Eric Schmidt had an awkward encounter this morning at the Sun Valley mogulfest this morning — and after Google detailed plans Tuesday to create software it hopes will challenge Microsoft’s dominant Windows operating system.

Mr. Gates and his former lieutenant Nathan Myhrvold were walking out of the morning session when two reporters, including this one, asked Mr. Gates for a comment on the new Google operating system.

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In theory, getting users to ditch one Internet search engine for another should be an easy sell. But doing so is likely to cost Microsoft (MSFT) every penny of the roughly $100 million it plans to spend on an advertising campaign that starts Wednesday for its new Bing search engine.

In economist speak, there are virtually no “switching costs” for a consumer that wants to change from one search engine to another, other than the burden of typing Bing.com into a Web browser instead of Google.com (GOOG). That’s nothing compared to the switching costs of a company changing a complex piece of enterprise software, which may require employee retraining, or a consumer who switches to a new operating system, requiring the purchase of new application programs.

In reality, of course, habit and inertia make it very challenging for a company like Microsoft to improve its 8 percent share of the search market against rivals like Google and Yahoo (YHOO). There’s also the problem that most people say they’re happy with their experience on Internet search engines today, though some of their online behavior–for example, the large amount of time they spend on typical searches–suggests otherwise, according to Microsoft’s research.

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While it’s true that Apple has significantly grown its share of the desktop operating system market since the release of Windows Vista in November of 2006, the company’s market share remains below 10 percent, and it actually dropped in the first quarter of 2009, according to Gartner’s Worldwide PC Shipment report.

To most observers, it’s fairly clear that Vista’s failings gave people a reason to take a fresh look at the Mac.

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As recently as late 2008, Pandora Networks’ Chief Technology Officer Tom Conrad still had big doubts about the prospects for smartphone maker Palm (PALM). In November, Conrad was among a coterie of software developers invited to Palm headquarters in Sunnyvale, Calif., to take an early, up-close look at an operating system for use in the company’s phones. “I was totally skeptical when I walked in,” says Conrad, who met Palm execs along with representatives of MySpace, Intuit (INTU), movie site Fandango, and Epocrates, a maker of mobile software for physicians.

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Chrome is not going to replace Windows. A computer requires an operating system such as Windows, Apple’s OS X or Linux to make the machine work. It does, however, have the potential to do what Mr. Gates feared: make the choice of operating system less important.

So writes John Gapper, the fine columnist for The Financial Times in today’s paper. Chrome, of course, is Google’s new browser, which is pretty explicitly designed to be a Windows killer. As Mr. Gapper notes, that precise fear–that an Internet browser could become such a powerful platform for applications software that it would effectively take over the function of the operating system–is what caused Microsoft to start the browser wars in the 1990s, effectively putting Netscape out of business.

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Last year, Facebook chief executive Mark Zuckerberg suggested that a PC operating system was the inspiration for Facebook’s new “Platform.” With Platform, anyone could write applications for Facebook. Facebook’s in-house applications would get no special treatment, he declared. The analogy to an operating system is appealing. For many years Microsoft’s Windows operating system has benefited from the large number of applications written by outside developers. People buy Windows, not necessarily because it is the best operating system, but because it has the most applications. Like Microsoft, Facebook does not have a monopoly on great ideas nor unlimited bandwidth, and a platform ostensibly allows Facebook to leverage the talents of the entire developer community to its benefit.

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