Browser underdog Opera fights for survival

OSLO, Norway--Opera Software, the scrappy Norwegian browser maker, today faces arguably the biggest competitive threats of its 15-year history.

The first challenges are on personal computers. Right after Google's Chrome burst onto the scene two years ago, Opera slipped from fourth to fifth place in browser usage worldwide. And longtime archrival Microsoft is no longer the punching bag of the browser market; its forthcoming IE9 is a serious attempt to match rivals in performance and support for new Web standards.

Second, in Opera's other domain, Apple's iPhone and now Google's Android are rewriting the mobile browsing rules. Their browsers are adapted for phones more like miniature desktop computers than the small-screened, candy bar-shape models that prevailed when Opera's mobile browsing business began.

And yet the Oslo underdog has adapted to crises before and appears to be adapting to the present changes as well.

In a series of interviews at its headquarters here, Opera executives showed they suffer no illusions about the competition. They also made a credible case that Opera, while not about to dethrone its bigger rivals, will continue to defend its turf with a profitable business.

A new mobile strategy
One cornerstone of its confidence comes from a major shift in its mobile strategy in response to a dark, unprofitable patch in the second half of 2009. Opera shifted its alliance efforts from phone companies to the powerful network operators who see their future threatened by the new generation of smartphones and services.

"We're taking bigger bets on operators because they need us more than bigger handset operators," said CEO Lars Boilesen. Phone makers' expansion into operating systems, applications, and app stores threaten to demote carriers to mere "dumb pipes," but Opera's software can help maintain those carriers' customer relationships.

And so far, the shift is paying off for the browser company. For one thing, Opera has more engineers to devote to the core products--Opera Mini and Opera Mobile--because the company is delivering the same branded browser to carrier partners rather than variations of an unbranded browser to phone makers. For another, the carriers pay recurring fees based on active users, not the one-time, up-front payment of phone makers.

The result: revenue from operators has increased to $9 million in the second quarter of 2010, up from about $7.1 million two quarters earlier.

Revenue from Opera's desktop browser, which runs on Windows, Mac OS X, and Linux and comes with a money-making search box leading to Google or other search engines, helped prop up the finances during the mobile transition. And a newer business--browsers on Net-connected TVs and set-top boxes--also is increasing.

Overall, the company's second-quarter net income was a $3.3 million--less than a rounding error at its competitors but enough profit to keep the company in its niche.

A 15-year Opera
Opera was founded June 22, 1995, though its roots extend to a research project begun in 1994 at Telenor, Norway's largest telecommunications company. It remains in the same Oslo building that's housed it for years, even as its neighbors--search company Fast Search and Transfer, developer toolmaker Troll Tech, and videoconfercing specialist Tandberg--sold to Microsoft, Nokia, and Cisco Systems, respectively.

It's very far from the U.S. software industry--geographically and culturally. Even with fierce competition from overseas rivals, several Opera employees took pride in a work-life balance at odds with the Silicon Valley ethos.

And yet it's not only eked out a living, persisting as browser efforts from IBM, Symantec, Sun Microsystems, and Netscape fell by the wayside, it's actually won a measure of influence.

Opera helped keep the fires of Web development burning during the dark years when Microsoft's Internet Explorer grew dormant after winning the browser wars of the 1990s and when standards groups were fruitlessly focused on dead-end XHTML technology. It won a band of loyal users who help to promote the browser, eagerly pointing out that innovations such as tabbed browsing, a built-in search box, Web page thumbnails on the new-tab page originated at Opera. It's secured some helpful geographic strongholds such as Russia. And its mobile browser products top the market even as the headlines go to Apple.

Partly through its standards-group work, Opera punches above its weight in the industry. Its independent support can help new technology such as Google's WebM for video streaming or Mozilla's Web Open Font Format get off the ground, for example. And its chief technology officer, Håkon Wium Lie, worked with Web founder Tim Berners-Lee and founded the Web formatting technology called Cascading Style Sheets (CSS) that's now one of the hottest areas of Web design.

Perhaps surprisingly, the company now employs 700 people, and 80 percent of them are engineers. The vast majority of people don't use Opera's products, but those who do now number more than 140 million.

Those engineers are working on cramming features into Opera. Its new version 11 for desktop machines, though still in alpha testing, will be an important test as Opera adds extensions to customize the browser and match rivals' hardware acceleration, according to Lars Erik Bolstad, vice president of core technology. Those programmers also are building hardware acceleration into Opera Mini and Mobile so, for example, pinch-to-zoom and scrolling work smoothly on capable phones

Real threats
The competitive threats are real, though. Even as Opera hangs on to its slice of browser market, three of its competitors--Apple, Google, and Microsoft--are tech giants with powerful global brands and tremendous financial resources. The fourth, Mozilla, rose from the ashes of Netscape with Firefox. It, not Opera, is the independent browser that grew to the top alternative to the browser built into Windows.

All these competitors are pouring development funds into their browsers as the market takes on new importance. The increasing power of Web applications such as Google Docs and Facebook means customers spend ever more time working and living within the frame of a browser window.

And Opera isn't at the top of Web developers' priority lists. Web standards mean compatibility isn't as hard as it once was, but it's still a huge problem. The deluge of new technologies, some essentially trial versions of what might become standards, make it worse.

"I always feel Opera is the Rodney Dangerfield of browsers. They get no respect," said Brad Neuberg, who's worked on many Web projects at Google including Google Docs and Gears before striking off to begin a start-up trying to capitalize on HTML5 and related Web technologies.

"There's a clunkiness to it," Neuberg added. "The technical underpinnings are amazing," but Opera needs a user experience experts to "make it feel like a joy to use."

On the mobile side, development is on fire with the new generation of smartphones. Even though native applications are a dominant means of tapping into network services on iOS and Android devices, mobile browsing use also is growing at a healthy rate.

Notably, iOS's Safari and Android's built-in browser are both based on the same open-source engine, WebKit. As notably, so is the browser in Hewlett-Packard's WebOS for Palm phones, Samsung's Bada mobile operating system, and the browser coming to new BlackBerry devices. WebKit has proven a unifying, empowering force in mobile browsing.

Indeed, it was WebKit that whacked Opera's unbranded browser business.

Mobile choices
Opera sees room for others--hardly a surprise given that about 70 percent of its revenue comes from mobile compared with about 30 percent for its desktop browser. It's adapting its two browsers--Mini and Mobile--to keep its business humming despite the smartphone market upheaval.

First, a primer on what separates the two. Opera Mini, the company's first mobile browser, is geared for wimpier hardware. To handle pages on a Web steadily growing more complicated, Mini uses Opera servers to read the Web pages, boil them down into a compressed state, then send them to the display vessel that is Mini. It makes money for Opera when the company customizes it to put carrier-preferred shortcuts on the "speed dial" quick-launch page--for example a Vodafone offer for two free weeks of Internet access in Egypt--and can share in resulting revenue.

Opera Mobile, in contrast, is a full-fledged browser based on the same engine that runs on the desktop version of Opera. That means it works on interactive Web applications where Opera Mini often struggles or fails. It's available on Nokia's Symbian operating system, among other areas, and tomorrow is set to arrive in beta form on Android.

The Android product will bring the revenue-sharing business model of the desktop browser to new mobile users, said Christen Krogh, Opera's chief development officer. "We want because we think the consumer monetization model we're helping bring about on mobile is going to be really lucrative," Krogh said. Opera came out ahead when in 2005 it moved from charging for the Opera desktop browser itself to getting a fraction of online transactions such as clicking on search ads that its browser helped facilitate.

"We think that model is going to be really lucrative in mobile," Krogh said.

Like Opera for the desktop, Opera Mobile got a turbo mode that can use the Opera servers for a speed boost when networks are strained.

"We are living in a bubble," in first-world countries with disposable income and fast networks, said Jon S. von Tetzchner, Opera's co-founder and until the end of last year chief executive. Opera's browsers are designed to reach the rest of the world as well, and that is where a huge amount of growth for Internet services is taking place.

And while the smartphone revolution is real, he said, so is the growth of lesser models. Moore's Law, broadly speaking, has enabled powerful hardware in high-end smartphones, but that's not the only change it's brought to the mobile market.

"Instead of something twice as powerful, you're actually seeing a more reasonable price," von Tetzchner said. "They cut the cost instead." Such lower-cost handsets are often the staples in areas such as India where mobile phones, not PCs, are the dominant way people tap into the Net.

Turbo time
"When CPUs get faster, we want to do hardware acceleration as much as the next guy, but we also want to do the harder optimization--what do you do when the device is almost crawling?" von Tetzchner said. "From a programmer challenge point of view, that's a much harder problem."

And it's still relevant in the rich part of the world, where network connections often are overtaxed even where high-speed networks have arrived. Opera Mini and Opera Mobile can also cut data usage for the large number of people without unlimited data plans.

The service is widely used; Opera just opened a new data center in Iceland to support 20 million Opera Mini users in Europe, Africa, and Asia. It's not easy to run at scale, as browser maker Skyfire showed when its new browser application for streaming Flash to the iPhone overwhelmed its servers.

Carriers like it the turbo service because it gives them precise visibility into statistics such as how people use the Net, for example letting them gauge how likely people are to need more lucrative higher-end data subscription plans.

"We give them precise analytics of Opera users on the network," Boilesen said.

Also, through a 2010 acquisition of Californian mobile ad network AdMarvel, Opera has the ability to feed ads efficiently into the billions of Web pages it delivers through its servers. It's not a lot of revenue today, but Opera expects growth.

But Opera still needs to work on its turbo mode, Boilesen said--starting with visibility.

"We have not really successfully launched turbo," he said. "We don't need to relaunch it, but we need to get people to try turbo on phones."

In the big picture, being a gateway to tens of millions of people's usage of the Web is indeed a powerful position. The company just needs to figure the best way to accommodate Web applications, avoid abuses of its privileged role, and extract money from the role most effectively.

"I think it's interesting times for Opera," Boilesen said. "We have something nobody else has."