- Microsoft has announced that it intends to retire its popular web browser Internet Explorer and replace it with a new one
- The transition to a new web browser is likely to lead more people to try new web browsers such as Google Chrome, currently the leading web browser
- More people shifting to Google Chrome will help Google to lower its spiraling traffic acquisition costs
Microsoft (NASDAQ:MSFT) now plans to retire its ubiquitous web browser Internet Explorer and bring in a new web browser with a fresh look. This hardly comes as a surprise given the stodgy nature of the old browser--IE does not support extensions, does not sync with other devices by default and is not available in non-Windows devices. All these are mainstays of Google’s (NASDAQ: GOOGL) popular web browser Google Chrome, which have helped drive Google Chrome growth.
Microsoft introduced IE back in 1995 when it launched Windows 95. The company used to embed a free copy of the browser in every Windows device and this helped to spread the reach of the browser very rapidly. Internet Explorer commanded a browser market share north of 95% during its hey days back in 2000-2002. But, Microsoft became complacent and failed to improve the browser. It wasn’t until 2006 that the company released a new IE version, IE7, by which time many users had begun experimenting with competing web browsers such as Firefox and Google Chrome. IE market share has been on a precipitous decline ever since and Chrome overtook it last year to become the most frequently used web browser.
Role of Web Browsers in Traffic Acquisition Costs
Part of the reason why Internet Explorer has been losing the browser wars is directly attributable to Microsoft’s weak mobile presence. According to IDC, Windows Phone has a market share of just 2.8% compared to 76.6% for Android. Windows Phone shipments grew at just 4.2% in 2014 well below the market average growth rate of 28.2%.
The exit of Internet Explorer is likely to be a welcome reprieve for Google. Google spends a large amount of money on traffic acquisition costs, or TAC, each year. The search giant pays search royalties to companies that own competing web browsers such as Apple and Mozilla so that Google becomes the default search engine on their browsers. Morgan Stanley estimates that Google pays out more than $1 billion to Apple every year to become the default search engine on Apple’s popular web browser, Safari. The company used to pay another $300 million to Mozilla to become the default search engine on Firefox before Mozilla ditched Google last year in favor of Yahoo (NASDAQ:YHOO).
Even though Google’s TAC by its network members has been gradually coming down, its TAC by distribution partners has been rising. Google’s TAC by its distribution partners currently sits around 5.6% of its website revenue.
Morgan Stanley estimates that Google’s TAC will continue rising and finally reach 9% of its website revenue by the turn of the decade, which is quite high. Apple accounts for about a third of Google’s TAC. Google spent a record $1.64 billion as TAC for being Safari’s search engine. According to Goldman Sachs, Apple devices accounted for 75% of Google’s mobile search revenue, translating to $8.85 billion, of which roughly half is directly attributable to Safari traffic.
Google Chrome currently owns about 48% browser market share. Despite losing a huge part of the market, IE is still the second most popular web browser, with a market share of around 30% which is a sizable percentage. The exit of IE is likely to lead to more users using Google Chrome as their search engine, which will help Google to get a better handle on its spiralling TACs. More people using Google Chrome instead of IE means that Google will have to spend less on TAC in the future.
Some IE users already use Google as their search engine. Internet Explorer uses Bing as the default search engine, but users can change to other search engines such as Google. Bing has 19.5% search engine market share, which means that roughly two thirds of IE users rely on Bing instead of Google as their search engine.
These are the users that Google would be most interested in netting since they represent ad income that goes to Microsoft instead of Google. There is no guarantee of course that all these users will start using Chrome once Microsoft withdraws support for IE. But, chances are that a good number of them will choose Google Chrome given its popularity and ease of use.
Microsoft will provide a new web browser that has been codenamed ‘‘Edge.’’ Edge will be shipped with the upcoming Windows 10 OS. But, it might take several years before Edge can become anywhere nearly as popular as the old IE was. Old habits die hard, and many people are usually unwilling to upgrade unless they are compelled to do so. For instance, Windows XP remains the second most popular desktop OS with a 19.15% market share close to a year after Microsoft ended support for the OS. The withdrawal of IE will provide the final straw that encourages people to try out new browsers. IE already has a bad reputation for being prone to bugs, and you can only expect this to get much worse once Microsoft ends support for the browser.
The exit of the still highly popular Internet Explorer might prod more users to turn to Google Chrome as their web browser of choice. This could prove to be highly significant to Google and help it to control its traffic acquisition costs which have been trending north. Even though Microsoft will release a new web browser to replace IE, it might take several years before it becomes as popular as the old IE which might give Google Chrome a good chance to grow its market share significantly.