After reading this article by John C. Dvorak, I can start buying into the need for Google to create their own operating system, aka, the GoogleOS. More specifically, the OS should be a binary-compatible replacement for Microsoft (MS) Windows.
The GoogleOS business case
Ironically, what drives this is MS themselves. As history has shown, MS will keep relentlessly coming after Google's ad business. They may never succeed in overtaking Google, but MS seems to follow the old General Electric strategy in that they have to be #1 or #2 in any market they go after. In this case they're attacking Google's cash cow -- ad revenue -- by trying to build their own ad-serving systems and attacking Google search with live.com.
Dvorak states that when Netscape became a nuisance, MS just created their own browser, made it free, and wiped them out. While I can't see how MS can build an ad-serving system and then give it away for free, I can see where it can happen if you reverse the positions, and Google goes after one of MS's cash cows: the Windows operating system.
The theory goes like this: Google creates the GoogleOS, and makes it binary-compatible with Windows, meaning that any application that runs on Windows runs on the GoogleOS. And then they make it free.
Just like IE was made free to wipe out Netscape, the GoogleOS is given away free to attack Windows. (And not just free, but "open source free", which I'll get into shortly.)
The type of operating system I'm talking about would be something like a combination of Linux and WINE HQ, letting users run Windows applications without purchasing MS Windows.
But it's not enough to say that it's "Linux": it must have a user interface (UI) that is attractive, and has a small learning curve for existing Windows users. I've heard from friends that are Windows users, and when they try Ubuntu, there's still too much of a learning curve (and driver issues) there, so it has to be even better than that.