Many investors may not consider web browsers as a big revenue driver, and for good reason -- companies give them away for free. But some tech companies can -- and do -- make money some from their free browsers. But as mobile has taken off, some of the old ways of doing things are being challenged by new competitors.
Browsing for profits
Chinese tech companies with mobile browsers -- like UCWeb and Tencent -- make some of their mobile profits through revenue-sharing deals e-commerce sites. UCWeb CEO YongFu Yu recently wrote in an AllThingsD article that Chinese mobile users find advertising "disruptive and invasive" and said that his company's browser is more of a service platform for users rather than an entry point to the Internet. His conclusion was that U.S. companies should look to the Chinese model of monetizing mobile browsers.
Though Yu seems positive about the Chinese approach to mobile browsers, U.S. companies do actually make money from their browsers as well, both in mobile and desktop.
Both Apple's (NASDAQ: AAPL ) Safari and Mozilla's Firefox browsers earn search royalties from Google (NASDAQ: GOOGL ) . Google pays the companies to use its service as the primary search engine in their browsers -- and in some cases pays them quite well. It's estimated that Google made $1.3 billion from iOS searches last year, and paid $1 billion to Apple to remain the company's default mobile search engine for iOS. Though its not clear whether this is through a revenue-sharing model or direct payouts, a Morgan Stanley analyst believes Google pays Apple about $3.20 per iOS device.
Others tech companies have worked out deals of their own. Yahoo! (NASDAQ: YHOO ) and Microsoft (NASDAQ: MSFT ) are currently in a 10-year deal for the popular content site to use Microsoft's Bing search results. Right now, Microsoft receives 12% of the revenue Yahoo! makes from ads on the search results page on its site. But the Wall Street Journal reported last month that since Marissa Mayer took over at Yahoo, the company is looking to end its deal with Microsoft and wants to transition to Google's search – a move that isn't likely to take place until at least 2015.
An uncertain future
Though some Chinese tech companies are trying to change the way browsers make money, companies that are used to the search royalties structure may find it hard to change to another model. While UCWeb may be making money from revenue sharing with websites, it's likely the company is still heavily involved with advertising as it was just a year ago. Midway through 2012, UCWeb was generating 75% of its revenue from advertising in the mobile browser.
Whether its revenue sharing, search royalties, advertising, or something else, companies are still trying to figure out the best way to make money with their mobile offerings. For browser companies like Apple and Mozilla, it seems the search royalties may be the easiest and the most lucrative right now.
Competition is heating up
Years ago, U.S. tech companies had the only competitive web browsers, but with the rise of mobile Chinese companies have millions of mobile customers using their browsers everyday. As a result, the top five U.S. tech companies are increasingly competing with each other for search services -- even if they're not a traditional search engine company. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.