Google CEO Eric Schmidt is no stranger to controversy.  Heading the world's most powerful internet corporation, he has taken on everyone from Bill Gates to newspaper moguls without breaking a sweat. 

However, Mr. Schmidt has his hands full currently with criticism about the fact that he holds a position on Apple's board of directors.  As a major Apple investor, Mr. Schmidt seems a natural fit for the board.  However, Google competes with Apple in several markets already including the browser (Google's Chrome challenges Apple's Safari 4) and the smart phone market (Android OS phones like the G1 challenge Apple's iPhone).  The board position would also require Mr. Schmidt to help direct Apple's business which is a possible illegal conflict of interest.

Now with Google set to challenge Apple in yet another market -- the OS business. Google is looking to challenge Microsoft's Windows and Apple's OS X by making an operating system of its own:  Chrome OS.  The move, announced earlier this week, made headlines as many hope that Google's user friendly applications will translate into an operating system that is more user friendly and open that Apple or Microsoft's offerings.

Under investigation by the U.S. Federal Trade Commission, Mr. Schmidt revealed that for now, things seem to be OK with Apple.  He told Reuters, "I'll talk to the Apple people. At the moment, there's no issue."

As to Chrome OS, he says that netbooks with the OS on it will likely be announced later this year.  The OS itself will debut in units shipping in the second half of 2010.  This allows it to avoid a direct competition with Windows 7 and Apple's Snow Leopard, both set to launch in the second half of this year.

While Apple has insisted that it will not make a netbook due to quality concerns, Google's OS could possibly drive customers from Apple's pricier offerings to cheaper netbooks.  For Microsoft, the announcement is equally threatening as it was hoping to finally capitalize on the netbook market with a modern OS with Windows 7 being slim enough to run on many netbooks (Windows Vista was too bulky for most netbooks).  Now it will face a battle for this growing chunk of market share with a company that's already beat it in the online search business.

However, Google also faces tough challenges.  Even if Mr. Schmidt agrees to cut ties with Apple and resolve the legal issues surround his board seat, the company is entering a territory which Microsoft has long dominated, with as much as a 90 percent global market share.