Microsoft (Nasdaq: MSFT ) is slowly losing the one and only thing that makes the company a serious force in the online space. According to fresh figures from traffic tracker StatCounter, the Internet Explorer browser's market share has sunk below 50% on a global level. That hasn't happened for more than a decade.
Open-source alternative Firefox holds firm in second place with a 31.5% market share, and Google (Nasdaq: GOOG ) Chrome tripled its importance year over year to 11.5%. Apple (Nasdaq: AAPL ) and its Safari browser limp into fourth place with a 4% share.
Only two years ago, Microsoft's IE dominated the browser market with a 67% market share, but ready availability of clearly better browsers is reducing the product to a shadow of its former self. The upcoming IE9 looks like a quality program, but at present it's still only available in an unsupported beta version, and it won't make an impact on the market in the near future. Once IE becomes just another browser in the crowd, Microsoft loses the tool it uses to drive traffic to all of its online properties.
Unfortunately for Microsoft, IE is so deeply embedded in the Windows operating system that any serious changes to the browser must be cross-tested six ways from Sunday, to make sure the alterations don't break anything else. You'd think this extensive testing would lead to a superior product, and the process surely does iron out a large number of bugs before the code ever leaves Redmond. However, most of it is compatibility testing, rather than innovation. For example, Microsoft took years to add tabbed browsing, after Firefox, Opera, and others showed how useful the feature is. HTML5 support is forthcoming in IE9 someday, but already available in Firefox, Chrome, and Safari. Microsoft is playing an eternal game of catch-up.
And even if Mr. Softy does separate the browser from Windows once and for all, and then steps hard on the browser innovation accelerator, the damage may already run too deep in the public psyche. It could take years to re-establish IE as a premium product and start regaining market share, even if the next version turns out to be the best thing since sliced cheese.
If there ever were a good time for Microsoft to simplify its enormously complex business model, it would be now. Spin the entire online division off, or sell it to business partner Yahoo! (Nasdaq: YHOO ) ; hand the hardware operations off to Logitech International (Nasdaq: LOGI ) ; either drop the mobile platform altogether, or redouble efforts to make it truly successful; then refocus the company's resources on the remaining software and entertainment divisions.
You'd get a stronger Microsoft without the distractions of fighting Google at every turn. The online business might actually flourish under a real Internet business (though Yahoo! itself has some issues to work out first). And investors could finally buy into the operating system and productivity software strengths of Microsoft without suffering from its online missteps. The StatCounter data underscores the benefits of a plan like this.
I know it's not likely to happen -- but a Fool can dream, right?