The fast pace of the Web is also why Google was able to rise so fast as the dominant search player and make so much money -- cash that's now allowing it to challenge Microsoft in its own backyard.

"Microsoft knows things are moving more toward the Web and fighting to stay relevant and make .NET work on multiple platforms," Silver said, speaking of its Web development platform. "But certainly today their cash cows are Windows and Office, and the slower any sort of move goes, the better for them."

Google's OS challenge will certainly accelerate the move to a world where applications are no longer dependent on an operating system -- and thus hasten whatever plans Microsoft has to modify Windows for this world -- but "it's going to take a while before we really get there," Silver said.

Microsoft declined to comment Wednesday on Google's announcement, and it remains to be seen how it will respond. But analysts said Microsoft has a few options to maintain its dominant position in the short term while also positioning itself for the longer battle.

Right now it can shore up its relationships with hardware makers and business customers to keep people in contracts to use Windows as long as possible, analysts said.

It can also continue to develop device-centric OSes and try to make them as robust as possible, to continue its dominance in the PC arena and make deeper inroads on mobile devices -- although its position in the smartphone market has been undermined by the iPhone and it is unclear how Microsoft can respond, Rosoff said. "Apple is dominating the market -- Microsoft is not even considered a competitor," he said.

To tackle the longer-term threat from Google's Chrome OS, Microsoft could start with a clean slate and create the version of Windows envisioned by its Midori project, Gillett said. This might be difficult for traditional Windows users to swallow -- particularly entrenched business customers who use Windows-dependent applications -- but not impossible, he said.

Gillett cited Apple and its drastic "jump off the cliff" transition to Mac OS X in 2001 as a precedent for migrating users successfully from a desktop OS with which they're comfortable to something game-changing. "Apple has been very, very good at making technology migrations and forcing users against barriers," he said.

However, Microsoft faces "a much bigger challenge because of the size and the nature of the ecosystem and the fact that they don't control the hardware," Gillett said.