The article says this will be “based on Ubuntu” but it will probably actually just be Ubuntu with custom defaults, pre-installed software, and maybe repositories.

This just makes sense in my view. The cost relative to the number of machines they must deploy will be miniscule. If they do not mess with the core system too much, they can outsource almost all the admin and expertise to Canonical in terms of security and packaging. People saying this will blow up. Why? It does not sound like they are really creating a full distro from scratch. Is Ubuntu not viable?

In terms of why crating a custom version instead of just using actual Ubuntu. Again, the cost of customizing a distro can be dramatically less than making even simple configurations on every system after the fact. They can standardize what the desktop will look like and set key defaults. They can choose what applications are installed by default. They can remove applications from the repository that they do not want to be installed. The can ensure that localization is done well, etc.