When most people think of the Internet, they typically think of the specific websites and spend little time wondering about the browsers that they're using. Most people have used a variety of browsers from Internet Explorer to Google's (Nasdaq:GOOG) Chrome and unlike most of the services that you can attain from the Internet, the browsers - the tools that actually make using the Internet possible - are free. One would think that this would be the aspect of the Internet that would cost money, but it isn't, so that raises the question, how do Internet browsers make money? Outside of the obvious answer of ad revenue, there are a few tactics that companies use to turn a profit while giving away their product for free. This article will highlight the primary ways that the top ranking browsers by user percentage (Google Chrome, Mozilla Firefox and Internet Explorer) make their money.
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In what is probably an unknown and unnoticed feature to most, the default search engine on most browsers is always Google. Most people do use Google for their Internet inquiries, but has anyone ever stopped and wondered "Why is it always Google?" Other search engines such as Bing and Yahoo! (Nasdaq:YHOO) pull the same results when you enter the desired information. So why is Google always the one listed? The reason is because Google pays what is known as Search Royalties. What this means is that Google pays an Internet browser company (excluding their own) a substantial amount of money in order to make Google the default search engine for the browser. The 2010 Audited Financial Statements for Mozilla, the creators of Firefox, show that they were paid $121,109 in royalties, of which Google represents a significant portion of.
From a business standpoint, the primary purpose of providing a free browser client for customers is market penetration. Market penetration is a measure of the amount of sales or adoption of a product or service compared to the total theoretical market for that product or service. What this means is that for every person that is a user of a certain browser, there is a market for a different product that can or will be offered to the client. In the case of Google, this is their biggest concern as they offer several different products that can be integrated with Google Chrome such as Gmail, Google Plus and Android Software. Some of these services can be had for free, but others will cost money for the premium versions or for the program outright, and with integration between all Google products and services, it makes using Chrome that much more of a plus.
Indirect Revenue and Business
In the case of a company such as Microsoft (Nasdaq:MSFT), the revenue that they see is not necessarily tied into their browser, but is regarded as a total package. Microsoft was the first of the now three major browser companies to put out a browser for free. This was back when Netscape Navigator was the dominant party, and charging five dollars per copy of their software. Rumor has it that Bill Gates feared that computing would become 100% Internet based, so he decided to develop a browser that would be free and embedded into every computer that is running Windows software. While the value of Internet Explorer itself is not quantified by Microsoft, its intrinsic value is very high as it is packaged into all computers running windows software which still allows it to control a decent amount of the general client base and it is deeply embedded in the financial services industry. Companies have been using Internet Explorer since the 1990s and in some cases have programs that will only work with it, and to shut down operations to do a complete overall would be counterproductive and as such Internet Explorer will almost always be their browser of choice.
The Bottom Line
The idea of Internet browsers started out as a pay for use product but with the rise of computer and software availability, open source browsers have made it so that browsers will never be paid for again. As such there is no real way to gain direct revenue from an Internet browser, so the aim of the companies that produce these browsers is to find ways to attract the current users of their browsers toward their other offerings. The landscape doesn't look like it will change much soon in regards to who the three major players are, but there might be a shakeup in regards of who controls the largest slice of the pie depending on which one is the first to come up with the next revolutionary idea in the world of Internet browsers.
At the time of writing, Andre McNeil did not own any shares in any company mentioned in this article.