Sergey Brin and Larry Page are neeeerdddssss, not business school kids that decided to make a web app.
There is a good chance that they're doing this just because it's really really cool, and because they can. I imagine that if I ever had the sort of cash that they have, I would be doing the same thing that I do on the weekends NOW, but on a larger scale: geekery.
Building a linux distro is geekery of the highest order. Good for them. Google makes billions and billions of dollars from their other projects. This is one that they can figure out later. :). (or I can figure it out for them now: adsense, lots of it.)
I understand that google is a publicly traded company; they have shareholders to answer to, but I imagine that all they have to do is point at their earnings and go "trust us, guys...trust us".
If anything, this will drive more traffic to their moneymakers.
Also, i'd really appreciate if people would stop calling it a "linux distro". It makes as much sense than to call OS X a "BSD Distro"
$50 on your Netbook isn't much if it means you hand your thesis in on time...
Selling advertisings isn't about creating new places to put ads--it's about making advertising space more valuable. And that isn't as straightforward as you seem to think. :)
* And adsense ads in apps that others create.
Release an OS that will drive traffic to your spreadsheet app that will drive traffic to your search engine where you can sell ads.
*Gmail still doesn't really makes much money.
Not far removed at all. Google makes billions by selling ads. Even if they budget a couple of million $/year for this project (might be less, depending on how you structure the proejct), they'll be making crazy returns if this increases their ad revenue just by 0.001. Not to mention all the FUD it'll cause inside MS :)
1)helping encourage widespread html 5 and better javascript support so more people can run google apps
2) deals with hardware vendors
Keep in mind that with the web constantly growing and constantly improving, Google doesn't need a new business model - being the entrance to the greatest show on earth will work for a long time now. Google today mostly needs to fend off outside monopolists who would aim to seize the whole thing by taking control of one or another choke-points. And having an OS to challenge MS is important here - even if the OS only takes minority share, keeping MS honest is important. Moreover, if all those other companies don't make monopoly profits, they won't have extra cash to throw at Google.
To get to a Google prompt, a user needs: 1) A PC 2) An operating system 3) A web browser 4) An Internet Connection from an ISP
The OS can potentially control search engine choice. Ditto with the browser and the ISP. Notice that Google has challenged monopolistic behavior in steps 2-4 by now (wireless venture, Chrome, Chrome OS). PC architecture is already mostly open so Google doesn't have to do anything there - but Google does build PCs!
2. If there is more internet usage, Google makes more money.
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Additionally, Google has a bunch of cool things that it wants to do but it can't because Javascript is a gimp piece of junk at the moment.
The more power Google gets, the harder it can push for its features.
Disclaimer: my submission and my blogpost.