Updated from 10:34 a.m. EDT with stock information

Google ( GOOG - Get Report) is targeting another market where Microsoft ( MSFT - Get Report) has dropped the ball.

Setting its sights on the fast-growing netbook segment, Google expects to have a Chrome operating system ready for use a year from now. Google's lighter, faster, and presumably free Linux-based system will attempt to power an array of devices in between mobile phones and notebooks.

Google's Android software has already been sweeping Microsoft Windows Mobile out of the smartphone picture. But Android isn't up to the netbook task, and Microsoft's Windows systems are too large and too expensive.

Device trends are headed to a place where software has been lagging. Always on, power-sipping, instant-booting netbooks aren't designed for Windows, and while Linux operating systems fit the limited resource requirements, they get a big thumbs-down from consumers.

The next generation of devices require a new generation of operating software.

Big tech shops like Nokia ( NOK), Hewlett-Packard ( HPQ - Get Report), Dell ( DELL), Apple ( AAPL - Get Report), Asus and Acer are planning or already make mini-notebooks in response to the netbook invasion. And chipmakers like Qualcomm ( QCOM), Intel ( INTC - Get Report), AMD ( AMD), Nvidia ( NVDA - Get Report) and Texas Instruments ( TXN) have big plans for the mini computing space.

It was inevitable, perhaps, that Google would jump in to the netbook operating system arena given its early success with Android.

Microsoft, oddly enough, has an in-between system called Windows CE, derisively called Wince. And outfits like Nvidia are working with manufacturers to produce mini-notebooks running on Windows CE as early as this year, Nvidia mobile device general manager Mike Rayfield said recently.

But most consumer electronics makers have been taking a pass on Windows CE for the past several years.

Next up for Microsoft is its upcoming Windows 7 operating system, which is expected to arrive late this year in an assortment of sizes. And now, Google's new Chrome OS plans all but guarantee that a version of Windows 7 will target the mini-notebook market.

And while Google and Microsoft race to meet the so-called smartbook opportunity, Apple has been applying its own polish to a touchscreen tablet-like device. This in-between gadget will no doubt pack as much punch of the Apple OS X as possible, while keeping with the promise of 9-hour battery life and zero wait time for startup.

So how big is this next generation software race? Who knows. But one thing seems clear: The hype will be huge.

"All of this is at least a year away. That's a decade in the technology business," writes Henry Blodget in his Business Insider blog Wednesday. "But it will be the story of the year."

Google shares were up 1.6% to $402.77 in Wednesday trading.