The Browser Wars: Technology or Distribution?

Did Microsoft beat first-mover Netscape because it responded with a better browser, or because if had better distribution networks abetted by anti-competitive practices? This research finds distribution networks, not technology, to be the most important factor:

Lessons from the Browser Wars, by Sara Grant, HBS Working Knowledge: In a famous example of how first movers can lose their advantage, second-mover Microsoft won the Web browser wars from Netscape and continues to dominate the market today. But that competition was the subject of another "war," this one among researchers who study how technology is diffused into the market.

The debate was this: Did Microsoft win because its Internet Explorer was the technologically superior product ..., or was Microsoft just more successful at the distribution end by convincing most PC companies, some argue by anticompetitive tactics, to include IE on every PC shipped in the late 1990s? Researchers line up on both sides of the argument.

A recent working paper by Harvard Business School professor Pai-Ling Yin and Stanford professor Timothy F. Bresnahan offers an answer. Looking at both the pace of adoption of new versions of the browsers and the brand choice made by users, "distribution played a larger role than did technical progress in determining the market outcomes," the scholars conclude in the paper "Economic and Technical Drivers of Technology Choice: Browsers." ... In this interview, Yin discusses the results and implications for new browser upstarts such as Firefox and Camino. Do they stand a chance against Internet Explorer?...

...[Sara Grant]: In your paper, you explain that your analysis of the "classical concern" in the diffusion of new technologies is based on technological progress versus economic resources. Can you explain this?

[Pai-Ling Yin]: The classical debate in economics has been whether the market always produces the "best" outcome. Best can be defined in different ways. In one stream of the debate, "best" has been defined as "technologically superior" (again, a term that can be defined differently). So, does the market always lead the "technologically superior" outcome, or can economic actors take actions to influence the market outcome so that a "technologically inferior" outcome arises?

We conclude that while both technological progress (measured by releases of newer and better versions of browsers...) and strategic actions (distribution browsers with PC purchases) increase the rate of diffusion of browsers into the population, the strategic actions (distribution or restrictions on distribution in the case of Netscape) are twice as important as technical progress.

Q: Your findings show that at the height of the competition between Netscape and Microsoft during the 1990s, Microsoft's Internet Explorer became the de facto browser standard. What does this say in regards to first-mover versus second-mover advantage, and about future browser battles?

A: What is interesting are the lessons we can learn about how a fast second mover can upset the normally strong barriers to entry that a first-mover advantage in a network setting can create. In short, the big lesson learned is that a window of opportunity exists for a second mover to challenge a first mover in this setting early on when the new technology has not yet diffused through the entire population—the second mover can try to influence new users rather than get the small installed base to switch over.

The second mover has to have some sort of asymmetric advantage, such as control over the distribution of a complement (in this case, the PC), in order to slow the build-up of network effects around the first mover and ensure that the second mover's product begins to build up a critical mass. A number of smaller strategic elements converge to generate this window of opportunity, but I encourage people to read the paper as well as a chapter on this phenomenon which is forthcoming in Shane M. Greenstein & Victor Stango (Eds.), Standards and Public Policy, Cambridge University Press.

As for the future of Web browsers, the standard has been set, and it will be very hard to displace IE. Although Firefox is touted as the new challenger, its share of end-users is only estimated at 10 percent, and end-users are less of a barrier to further market share than are Webmasters.

Q: What are the chances for browsers like Firefox and Camino for the Mac to become mainstream products? ...

A: Firefox and Camino claim only a small market share, and those users are on the tech-savvy end of the user spectrum. In particular for Mac-centric browsers, we still live in a PC-dominated world. Until IT managers in large enterprises are willing to support these browsers, they will not hit the mainstream in any major fashion.

Why won't an IT manager support these versions? The biggest headache with these browsers is that the majority of Web sites are optimized on IE. Try going to some of the major commercial airline sites, or to the Web sites of older and smaller companies. If you use Firefox, sometimes you will find missing menus, missing pictures, links that don't work, etc. Even Netscape doesn't work with all of our Harvard Business School applications.

But it's Webmasters who are the real barrier to a late-to-the-game second mover in the browser market. Because different browsers require slightly different code to be viewable, it is costly for Webmasters to write for different types of browsers. They will tend to pick the browser that is most used by the majority of end-users. Thus, the source of network effects in this market is indirect. While end-users don't know which browser other users are using, the developers of the content that make the browser so useful do care that everyone is using a similar browser.

Q: So Firefox and other new browsers, no matter that they have new features and refinements that IE lacks, remain at a competitive disadvantage?

A: Game over. ... Until IT managers in large enterprises are willing to support these browsers, they will not hit the mainstream in any major fashion. Either the innovations would have to be huge improvements over what IE can currently do, or a huge problem would have to arise with current IE use... Even with the security issues that plague IE, Microsoft has a huge amount of cash. If any browser really became a threat, Microsoft could easily imitate their innovation, or fix the IE problem with a patch. Indeed, IE successfully caught up to Netscape's quality by throwing a lot of money and manpower into IE browser development. ...

Comments

[save_the_rustbelt]

Firefox runs cicle around Internet Explorer.

It must have been distribution, it wasn't product.

[calmo]

I run a collection of browsers and I have to agree with Rusty.
The domination of MS is hardly because of the IE browser, no? It is Windows, the OS that needs our attention in seeing how blatant this distribution advantage is over any presumed technological superiority.

[pi]

Don't forget Firefox is freeware and shareware. In the era of internet distribution how can you beat what's being given away for free. That being said, would anybody purchase Firefox if it costs, say $29.95 or $59.95??

[john]

Actually, firefox is not really freeware or shareware.

It is an open source product: which carries with it an element of trust -- due to the peer-review inherent in open source. With shareware (or even commercial software) who knows what spyware is embedded in it.

[Bruce Wilder]

Posing the problem as a chicken-and-egg problem between distribution and technical advancement highlights the importance of network effects quite nicely, but obscures some critically important aspects of technical advancement in defining the 1st mover/2nd mover problem.

In writing the history of many industries, a certain selectivity has taken over. Many major industries seem to be dominated by the oldest companies, because the winners write history, so to speak. Obviously, the "oldest" companies survived. The "1st mover", as identified by history, is not necessarily the pioneer, per se, just the first important survivor. The pioneer faces some serious problems, which can make his "capital costs," for lack of a better term, fatally higher: he makes wasteful mistakes, which followers do not. But, really, the "first move" is not introduction of the product, but, rather, the introduction of continuous, technical improvement in the product: among the pioneers, the firm that survives and grows into a giant of industry is the firm that finds and adopts a business model, which organizes and finances technical progress at a rate, which excludes or limits later entrants.

Netscape was the "first mover" in the sense that it introduced continuous technical improvement. Before Netscape, there was a browser, but no organization dedicated to the technical development and progress of the browser.

Technical progress, and the creation of business and organizational models to carry it onward, are critical elements in defining who "1st movers" are, and what the opportunities for "second movers" may be. This is an aspect of industry development, like network effects, which generalizes.

Microsoft did have both advantages and disadvantages in regard to distribution. It had, and has, the serious disadvantage that other major players fear it.

Microsoft's strategy with regard to Netscape was two-pronged. It did use its distributional advantages ruthlessly. It also used its considerable technical resources to accelerate the rate of technical advancement in the browser. Having in place a well-financed organization for progressive software development is a huge advantage; Microsoft, arguably, is still the only business enterprise, which has ever successfully organized progressive software development on the scale on which Microsoft operates, and some would argue the "successfully" part.

An important part of Microsoft's distributional advantage was its ability to make the browser, "free" software, and undermine Netscape's nascent business model. (Netscape's business model actually also focused on selling the webserver software, which would have led Netscape to give away the browser, so Microsoft giving away the browser was not a lethal move by Microsoft; Microsoft's business model also includes selling the webserver software, but the 800 lbs gorilla in webservers, at the time and still, is not Microsoft or any business firm; it is the Unix Priesthood and its "free" Apache webserver.)

A critical win for Microsoft was AOL. That AOL uses Microsoft's browser, instead of Netscape's Gecko engine, was a result of Netscape losing the accelerated technical development race, which Microsoft put in place. AOL was a huge part of the "network", and it had strong incentives to favor Netscape over Microsoft, so strong that it ended up owning Netscape, but at a critical moment, Microsoft was able to offer a technical capability, which was critical to AOL's ability to integrate a browser into its own software. Microsoft componentized Internet Explorer -- a critical milestone on the path toward continuous technical advancement of the browser -- and, as a consequence was able to offer AOL an easy way to integrate IE into the AOL software. At the time, Netscape was choking on the spaghetti, which was its legacy code: a classic first mover's technical mistake doing them in.

[Bruce Wilder]

Personally, I use Firefox, and do not find many compatibility problems.

One thing, which has not received much notice is that Microsoft now makes its own webpages -- particularly and notably the MSDN webpages aimed at IT professionals and software developers -- work flawlessly with Firefox.

The "network effects" -- or, to use a better analogy, the "ecology" -- may well now favor some variety in webbrowsers.

I am not sure exactly how Microsoft's Firefox-friendliness fits in with its overall strategy. I suppose part of it is just placating those pros, who fear cram-down and monopoly entrapment. The company's forward business focus -- the focus of its progressive software development organization -- is on network server technologies, where its strategy aims at the integration of various technologies, which have already achieved a degree of acceptance as network standards. Microsoft's principal competitors in this space are the Unix priesthood and IBM, which has made itself the chief corporate sponsor of the Unix priesthood.

I'd love to see some smart economists tackle an analysis of not just network effects, but industry "ecology" and non-firm industry "structures" like the loose professional association, which I have referred to, as the Unix priesthood.

[Bruce Wilder]

The "ecology" problems, exemplified by virii and virulent spyware and adware, are Microsoft's biggest vulnerability, now.

"Ecology" emerges as "network effects" multiply into another order of magnitude or two of complexity.

Reduced vulnerability relative to Windows/IE, has given Apple and OS X, and Mozilla Firefox on Windows, a competitive advantage, which dwarfs whatever minor feature advantages, which they offer, and overcomes the compatibility disadvantages, which follow from simple network effects (such as webmasters not bothering to test their pages against Firefox or Safari, or Intuit neglecting Quicken for Mac, etc.).

Apple's move to Intel has shifted the competitive landscape just enough to allow OS X's security advantages to dominate; Apple is gaining market share at a phenomenal rate.

[Emmanuel]

(1) I have to admit that by IE 5.0, Microsoft had Netscape beat. The Netscape equivalent was by that time bloated, unwieldy, and still crash-prone. IE 5.0 had the goods on it, and until Firefox came along, Microsoft's offering worked for me.

(2) Try going to some of the major commercial airline sites, or to the Web sites of older and smaller companies. If you use Firefox, sometimes you will find missing menus, missing pictures, links that don't work, etc.

This is true: For example, the FT website does not honor my subscription when I follow links to it from this website. So, I need to bring up IE 6.0. Firefox is pretty neat, but for some sites, you have to rely on the ol' MSFT rascal.

(3) The browser industry does not make for a good case study, IMHO. Since the leading competitors are giving away their stuff for free, what are the commercial implications? (Sorry, Dr. Yin.)

[save_the_rustbelt]

I would pay something for Firefox, the pop-up blocking alone is that much better.

The only problems I have found with Firefox:

1) when I take my grandson into the Sesame Street kid site we use IE, it works better.

2) Certain downloads work better on IE.

[donna]

I run on firewox on the Windoze box, Safari on my Mac laptop. I wouldn't use IE if you're worried about spyware, considering it tells Microsoft everything you do...

[WOM]

Firefox is the best browser on the market. I think that because of the extensions aspect of it; they add a ton of functionality to the browser.

I think it has to do with both technology and distribution. Microsoft has a huge marketing power...whether it's shipping IE by default or spending 400 million dollars just on Vista marketing alone.

[anne]

Please do suggest a combination of virus and spyware control programs, for those technology limited souls who use Internet Explorer :) I will try Firefox eventually....

[anne]

Also, what suggestions might there be for a new home computer? Not a Mac :) Our technicians know Dell, which is what I have long had.

[knobboy]

Internet Explorer a better browser? Bwaahaha!! Reuters (04.11.06):
"Microsoft Corp. on Tuesday warned of three 'critical' security flaws in its Windows operating system that could allow attackers to take control of a computer.

One of the critical vulnerabilities appears in some versions of Internet Explorer that could make it possible for an attacker to use the Web browser to take total control of a PC."

Microsoft warns of three "critical" security flaws

[Ninjaplease]

If you're willing to buy a secure browser that gives you all that you need, look no further than Opera, the first web browser and the most secure on the planet--It's recently been made free, so its even better.

"One thing, which has not received much notice is that Microsoft now makes its own webpages -- particularly and notably the MSDN webpages aimed at IT professionals and software developers -- work flawlessly with Firefox."

Works flawlessly with Firefox---The facts are that Firefox follows W3C standards and Microsoft wrote their own that are incompatible with some parts of the W3C standards. Microsoft has simply begun complying with more of the open W3C web standards.