iPhone users are tuning to the Opera Mini browser, which now tops free apps polls around the world. But giving away a product isn't necessarily the best way to make money.
Cult of Mac noticed that Opera's Mini browser was topping the charts, and promptly checked the 22 iTunes stores to confirm that Opera Mini is the number one free application everywhere. But running those servers costs money, and it's far from clear if Opera Mini users can ever generate enough revenue to cover that ongoing cost.
To the surprise of all and sundry Apple approved Opera's iPhone browser, providing the first alternative to the WebKit rendering engine embedded in the iPhone. Opera Mini offers a faster browsing experience thanks to server-side compression.
Opera's business model involves sharing advertising revenue from searchers and selling Opera Mobile and Mini browsers to manufacturers for pre-installing on their handsets. The pre-installation market was largely dependent on Windows Mobile, which continues to suffer from collapsing sales. This has prompted Opera to change tack and start selling to network operators instead - a far less certain business and one where the company faces considerable competition.
Standard & Poor recently did a detailed evaluation of Opera's position and business model, and the news wasn't good. Revenue per employee is less than half that of Openwave (which is in a similar business) and income from handset manufacturers is expected to be knocking zero by 2012. Once the cost of all that compression is included Opera Mini is described as "at best ... a breakeven product".
Operator-branded versions of Mobile and Mini do make money for Opera - the operator coughs between €1 and €3 per year for the privilege. But the Opera-branded product that iPhone users are getting is only worth around 70 cents a year in search fees, which S&P reckons barely covers the cost of running all the servers it needs.
Besides all this the vast majority of Opera Mini users are in developing markets. 29 per cent are in Russia and 24 per cent are in Indonesia, where advertising margins are tight. The USA only accounts for three per cent of Opera Mini users, but perhaps all those iPhone customers will change that.
On the desktop Opera is being besieged by Chrome and Firefox. In the mobile market Opera Mini's compression technology is a product differentiator, but Skyfire and ThunderHawk both offer similar capabilities, not to mention Novarra, recently acquired by Nokia.
S&P's report applauds Opera's management and technical skills, but reckons the business needs a better model to survive. Topping the iPhone charts makes for great PR, but it won't put food on the table any time soon. ®