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Web Browser Wars: Google Looking Beyond Market Share

by: Chris Gottschalk September 04, 2008 | about stocks: AAPL / GOOG / MSFT    

Chris Gottschalk

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With the advent of Google's (GOOG) foray into Web browsers with Google Chrome, we have yet another contender for the title of Web Browser King. If you're not a die-hard web user this may not seem like a great title. Some Web browsers are better than others, yes, but these browsers are free anyway, so what's the point if one is more popular than another. Believe it or not, the business of Web browsers is pretty important, not to mention occasionally profitable. The popular websites of today may also be the operating systems of tomorrow.

Obligatory History Lesson

Before I continue, though, let me cover briefly how web browser companies make money. While they may be free to the user, companies who want to use the browser's source code will have to pay for that privilege. The best example of this is Opera, a little-known web browser that concentrates on selling its small screen browsers to companies that make cell phones, consoles and handhelds. It does extremely well profit-wise with this strategy, well enough to make its personal computer browser available free of charge.

Other web browsers, notably Internet Explorer (MSFT) and Safari (AAPL), are used to generate brand-name recognition, among other advantages. Internet Explorer is offered free, although you usually buy it incorporated as a part of the Windows operating system, such as Windows XP or Windows Vista. Similarly, Safari is offered on Apple's Macintosh operating systems, starting with Mac OS X. Both these programs are offered as something of a loss leader, although Apple seems to be looking forward to more portable computers. Their iPhones use Safari to surf the Internet, and the compatibility between the iPhone and a system that uses Safari could lead to Apple cornering the market on Web browsers with its iPhone the same way it did with iTunes and the iPod.

The final category is that of companies such as Mozilla, who created the Firefox Web browser, and the current challenger that has been causing Internet Explorer's market share to decline since it was introduced in 2004. They manage to make millions of dollars from deals cut with numerous search providers, such as Google itself.

The Masterplan

So what does Google hope to accomplish with their new Web browser? Their entry into the market would seem to target both Internet Explorer and Firefox. However, Google has recently resigned with Mozilla to keep their search bar in Firefox's tool bar until 2011. The announcement is good news for Mozilla, seeing as how most of their revenue comes from there. In 2006, Mozilla made $68.8 million in revenue as a result of licensing that space to Google, which was a significant improvement over the $52.9 million they made in 2005. This suggests that either Google is covering all its bases, or that their main target is Microsoft's Internet Explorer. Personally, I think both reasons are good. If you're going to compete in the market, you might as well set your sights on the 43 percent of market share Internet Explorer offers, rather than the 20 percent claimed by Firefox.

Google also has another reason to go after Internet Explorer rather than Firefox. Both Google Chrome and Firefox are open source. Internet Explorer is not. Given the close relationship of Google and Mozilla, this suggests that both companies will be using each others source code to improve their own product. It makes an odd kind of sense, market-wise. If you and your competitors can strengthen each other's products, you both win.

However, Google may be looking further ahead than market share. The idea of treating the Web browser as an operating system has been around since the early 1990s, and Google has worked hard on creating a suite of applications that are free and available on the Internet. They already have a free email client, joining the several already in existence, but they also have a calendar, a word processing program and a spreadsheet, among others. Everything is saved online, in your own personal Web space, provided by Google. Of course, it can also be saved to your computer as well, and all you need to do to access it is bring up your Web browser in offline mode. A lot of Google's products seem to be focused in that direction.

However, if Google want to corner the market on this new paradigm, they'll need a spectacular Web browser, something that shook up the Internet community the same way Firefox did when it was introduced. It's Web browser may be solid, but a merely solid browser is not going to have the kind of market impact they desire.

Disclosure: The author and publisher do not hold positions in the securities mentioned. 

 

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This article has 5 comments:

  •  
    Sep 04 09:10 AM
    Chrome is a huge gambit for Google. Will they deliver a great product within the next year? (On the Mac and Linux, too?)

    If this were Apple, we'd be confident; Google has a lot of smart people. I hope they're successful. We need another excellent powerful innovator on the Web to advance the technology and to ensure we don't have to experience a "night of the living dead" scenario w/ msft technoshit.
    Reply
  •  
    Sep 04 11:56 AM
    PK de C'ville... i agree but i'm long APPL. i doubt Apple will let Google run away with the prize. no one innovates better than Apple but it'll be interesting.
    msft hasn't a clue, so they're out of it. they couldn't even name their mp3 player something that didn't rhyme with tune (as in iTune). i hear they're paying seinfeld 10 million. so do you think he'll order the zune...in brown?
    Reply
  •  
    Sep 04 12:24 PM
    You left a few important points out.

    1) Chrome and Firefox are indeed open source; however, Chrome is built upon WebKit which is an open source tool strongly supported by Apple (it's the basis of Safari on the iPhone and under MacOS X). Assuming that all of Chrome is maintained in the open source arena, Apple will benefit relatively quickly. As Firefox doesn't use this software, their benefit will be less direct and immediate.

    2) Chrome is designed to slide right into Android. So Chrome is Google's Mobile web browser (akin to Apple's Safari on the iPhone). Obviously Apple wasn't likely to do something so potentially competitive with the iPhone and Google would be nowhere with a PhoneOS without a web browser.

    3) Google's line of web applications (Google Documents, gMail, Google Reader, etc) are currently hobbled by the absence of some key features in the web browsers. By providing an open source web browser that is optimized for enabling these web applications, Google is better able to compete with Microsoft's (and Apple's) more desktop centric application suite.

    In the final analysis, short of buying Opera, Google really had little choice but to develop their own web browser.

    reinharden
    Reply
  •  
    Sep 04 10:35 PM
    WebKit isn't just "strongly supported" by Apple, it was developed by Apple on top of KHTML, which is open-source. As a result, Apple has to return their work to the open-source community. This allows Nokia's S60, Adobe Air, Google's Android and Chrome and others to use WebKit to build their browsers. It's an informal WebKit alliance. WebKit's goal is to be the most web-standards compliant out there. In other words, it's built to stand up to MS's Internet Explorer. This is not about money, but about keeping the internet playing field open.
    Reply
  •  
    Sep 05 07:32 PM
    Oxbury research is a total scam. Anyone who invests in their recommendations is a moron. One look at their site and you can tell it's crap. Mitchy Sachs? I mean give me a break. You can find more crap by these losers by searching the other writers names. I am not the only one who thinks they are a joke, as these comments show.
    Reply
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