Wednesday, April 05, 2006

The 15% Rule

Internet Explorer is now has about 85% market share, according to This is an important inflection point: a firm, or firms in the case of a duopoly, loses strict dominance when it loses 15% of the market.

According to an economist friend, there is no theoretical basis for the 15% Rule. It should be wrong, but it turns out to be a good rule of thumb. IBM started to cut prices when it lost 15% of the mainframe market. Prices are higher on routes where United and American Airlines have over 85% of the landing rights. The same applied in the steel industry and the long distance telephony market.

Since web browsers are given away, one can’t test dominance through pricing power. However, one can see the effect in Redmond through Microsoft’s renewed interest in upgrading IE, and in its efforts to win hearts and minds. I’d expect that Microsoft will pay more attention to standards-compliance, eg CSS. Feature trade-offs will change; the company will pay more attention to the needs of consumer users compared to those of the enterprise customers who have dictated functionality to date.

As for the share numbers: momentum is running against IE, and its share will get worse before it gets better. Getting to feature parity with Firefox may slow down the defections, but the situation won’t turn around until IE can beat it on features. Once users get used to a product, they’re loath to change; and once they’ve changed, a lot of work is needed to get them back. The power of incumbency worked in IE’s favor for years; the tables are turning.

No comments: