January 18, 2009

Consumers are ok, no corporate welfare needed for Google and Opera

The EU is, after a complaint by Opera, going after the bundling of Internet Explorer with Windows. The legal reason being that "Microsoft's tying of Internet Explorer to the Windows operating system harms competition between web browsers, undermines product innovation and ultimately reduces consumer choice." It is alleged abuse of monopolistic power all over again.

At least two of Microsoft's competitors are obviously thinking it is a good idea for Microsoft to get its assed kicked by regulators, in addition to the whopping Internet Explorer is taking in the marketplace. That is what competitors are for, I guess.

Opera's CEO is talking about free choice and Mozilla's Asa Dotzler is portraying Mozilla Foundation and the Firefox movement as "a not for profit open source organization that depends on volunteers for almost half of its work product and nearly all of its marketing and distribution" and "an odd-ball organization called Mozilla has had some success in breaking Microsoft and Apple browser strongholds". But in addition he writes that for Microsoft's competitors, like Opera and Google, it is all about the money. Which is a really important point.

As we all have learned, open source software development works. It might be described as oddball compared with large corporations, but nevertheless it works. Especially when you have revenue of $75 million per year and 20 % market share (which is more than "some success" in my book). Thus, one shouldn't be fooled by the innocent description of Mozilla Foundation.

My take is that if enforcement don't make the situation significantly better for consumers and mainly end up giving competitors a larger market share for free, little is won and we should let everything play out in the market instead of regulating. And to me it looks like that is the case this time around.

Consumers are leaving Internet Explorer by their own choice

Obviously a huge reason for Internet Explorer's 70 % market share is that it is shipped with Windows. But does that mean that consumers don't have a real choice? Looking at the market share data for web browsers, it doesn't seem so. Internet Explorer has been losing 0.5-1 % of market share per month for the last three years and is now likely around 70-75 %. That is is a clear sign that consumers and companies have a real choice not to use Internet Explorer (and maybe that the distribution costs aren't that high).

Obviously 70 % market share is way above the circa 40 % line where regulators start to get concerned about a company having a dominant position, but Internet Explorer's market share is getting lower by the month and there are some trends that might accelerate the market share loss.

1) Google is no longer just supporting Firefox, Safari and Opera et al, but launched its own browser Chrome. Chrome took 0.5-1 % market share in its first two quarters, and I expect Google will push very hard to take it to 5-10 % in the next 18 months by market Chrome on its web sites and doing distribution deals with PC vendors like HP and Dell.

2) Firefox has good momentum and will continue to grow driven by strong word-of-mouth and likely to go from 20 % to 25-30 % market share in the next 18 months (given that Google doesn't stick a knife in Firefox's back when it really starts to market Chrome, then I think Firefox will hold its 20 % share).

3) Apple is taking share in the operating systems market, which translates into Safari having a larger share of the browser market as Apple is tying Safari with OSX. Likely going from 2-3 % to 5-6 % in 18 months.

4) Internet in the mobile is starting to take off with the iPhone and usage is switching from the computer (where Internet Explorer is strong) to the mobile (where Internet Explorer is weak). Likely it won't play out to more than 1-2 % of market share in the next 18 months, though.

So while Internet Explorer has the largest market share, its share is deteriorating and will likely be between 50-60 % in 18 months. To me that looks like the market is letting consumers choose.

Browser technology is getting better and there are ever fewer "only for IE" sites

Looking at browser technology, a lot of development have been made in the last few years driven by Mozilla, Opera and others. Regardless of what Microsoft has done with Internet Explorer, browsers that are widely used are much better today than five years ago.

In the same period, the use of standards when building web sites have taken a leap forward. A few years ago, web sites were quite often being designed primarily with Internet Explorer in mind. That is going away. The playing field is clearly more leveled today.

So there is innovation that benefits consumers and barriers to entry in the way of proprietary standards are going away. Thus I cannot see how increased regulation would significantly improve the browser technology available to consumers.

This relatively long blog post doesn't mean I think "the browser market" is a perfect market, but markets generally aren't. It means that given the current state of the Internet industry I think Microsoft bundling Internet Explorer with Windows does more good than bad for consumers and that the actions regulators seem to be thinking about (forcing Microsoft to distribute competitive browsers) would primarily help competitors rather than consumers.


Lars said...

I wonder why Microsoft still takes a ton of bashing while Apple gets away with a lot. Pretty interesting, but doesn't seem fair.

Henrik Torstensson said...

Thx for the comment. I think Microsoft's 15x (of Apple) market share has a lot to do with it. =)