Will Google Kill Firefox?

With Google (Nasdaq: GOOG  ) Chrome as the new No. 2 browser in the world, trailing Microsoft's (Nasdaq: MSFT  ) Internet Explorer but quickly closing the gap, the elephant in the room is what the search giant should do with Mozilla Firefox.

Nonprofit Mozilla derives the vast majority of its revenue -- 98% last year -- from search partners including Google, Bing, Yahoo! (Nasdaq: YHOO  ) , Yandex (Nasdaq: YNDX  ) , Amazon.com (Nasdaq: AMZN  ) , and eBay (Nasdaq: EBAY  ) .

It's like having a rich uncle...
In Mozilla's recently released 2010 annual report, the foundation indicates that 86% and 84% of royalty revenue came from one contract in 2009 and 2010, respectively. Mozilla separately confirms that Google is its largest contract. Last year's royalty revenue was $121.1 million, and quickly drawing my handy scientific calculator -- the one I keep holstered at my side at all times -- shows us that adds up to approximately $101.7 million coming from Big G.

This contract expired last month, and Mozilla has opted not to confirm whether this contract was renewed. Instead, it provides a frustratingly vague statement: "We have every confidence that search partnerships will remain a solid generator of revenue for Mozilla for the foreseeable future."

...who has always wanted to kill you
At the end of last year, Firefox had $34.9 million in cash and equivalents and $105.7 million in investments on the balance sheet, and ran through $87.3 million in total expenses. Software development expenses comprised $62.8 million of that last year, up from $40.2 million in 2009, as the browser wars have been technologically escalating.

If Google decides not to continue handing down nine-figure paydays, would Firefox be dead? This question is especially timely since fellow Fool Tim Beyers points out that Microsoft isn't Mozilla's worst enemy -- it's Google.

Let's assume for a moment that Google bails on Mozilla's contract. That's a gaping multicolored hole on its income statement, one that's large enough to cripple Mozilla. While $100 million may be but a drop in Google's bucket, which brought in $9.7 billion gross revenue last quarter, that figure is the majority of Mozilla's entire bucket.

Would any of Mozilla's other search partners step up to foot the bill?

Time to get a new rich uncle
Microsoft Bing has already lost billions getting up and running. The company's online services division, which includes Bing, is slowly narrowing its losses; it lost $494 million last quarter, down from $549 million in red ink a year ago. According to comScore's October figures, Bing carries a 14.8% market share, lagging Yahoo!'s Bing-powered 15.2% and Google's 65.6%.

Microsoft can certainly afford to take Google's place funding Firefox, but the question is whether it should. Just when Mr. Softy's online services division losses start to stabilize, expanding its partnership with Mozilla would reverse that trend and make the division's red ink even brighter.

Yo, Yahoo!
Yahoo! has enough problems of its own to deal with, from running around with its head cut off to fending off AOL (NYSE: AOL  ) CEO Tim Armstrong's advances, who keeps trying to go steady (no means no, mister!). Armstrong's nuptials aside, Yahoo! might even be considered the prettiest girl at the ball if the recent round of Microhoo rumors are to be believed.

While Yahoo! technically has enough cash to consider stepping up, finishing last quarter with around $2 billion in cash, equivalents, and short-term investments, it also saw its revenue shrink by about a quarter. Yahoo! has already agreed to let Bing be a backseat search driver anyway, so it's hard to imagine that the company could justify picking up where Google left off.

Itchy trigger finger
At this point, it should be pretty clear that Google has its finger on the Mozilla switch and could easily turn off the development spigot at its discretion. Doing so would give search rivals an opportunity to come in and buy the precious spot as Firefox's default search engine.

Microsoft is the only one that would presumably come to the rescue, but that's far from a sure bet. At that point though, the Redmond giant would be better off just buying Mozilla, letting it continue its own development path, rolling it into the online services division, and conveniently steering people toward Bing search. I doubt Microsoft would easily relinquish more than 15 years of IE branding, but a Fool can dream, can't he?

If no one stepped up, Firefox would eventually die a slow and painful death as development halted and users slowly migrated from a stagnant browser to the shiniest version of Chrome. It may see its search market share flinch slightly as Firefox swirled down the drain, but the long-term result would be one less contender. Ultimately, Google should pull the trigger and put an end to Mozilla's successful seven-year run. Next stop: becoming the browser king.

Add Google to your watchlist to see if it takes out Firefox and becomes the browser king. Google Android is helping drive the mobile revolution; get access to this free report on a handful of component suppliers that are winning from the mobile revolution.

Fool contributor Evan Niu doesn't actually have a scientific calculator holstered at his side at all times. He switched from Firefox to Chrome long ago and has never looked back. He owns shares of Amazon.com and Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Apple, Yahoo!, Microsoft, and Google. Motley Fool newsletter services have recommended buying shares of Microsoft, Amazon.com, Google, Apple, eBay, and Yahoo!; writing puts in eBay; and creating a bull call spread position in Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 06, 2011, at 1:59 PM, sheldonross wrote:

    Hmm, interesting to see what kind of backlash that would create. Killing off Mozilla would surely hurt google/chrome in some *people's eyes. Alot of those people are the same people that push Chrome and Firefox on the masses. Without them IE would still command a significantly larger market share.

    Of course, it probably would be forgotten soon enough.

    *Usually web developers, techies, open source people, your neighbors kid.

  • Report this Comment On December 06, 2011, at 2:53 PM, Rujikin wrote:

    Firefox killed itself. It was too slow implementing updates before chrome when it needed an update. Now it is releasing a new version number every 3 months. That makes addons not work with it properly. It also makes it annoying to have to update all of the time. They used to be slow at releasing major updates and fixed bugs often. Now they are quick at releasing major updates and never fix the bugs.

    My firefox 3.X.X was faster than this firefox 8 because 8 has more bugs than an ant hill. People are sick of this and leaving. I have been with firefox since version 1 but this is the first time I have been considering leaving firefox permanently.

  • Report this Comment On December 06, 2011, at 3:09 PM, piranha60565 wrote:

    If they just improved IE and made it not so proprietary (active X ect.) there wouldn't be a need for Firefox or Chrome.

  • Report this Comment On December 06, 2011, at 3:15 PM, DJDynamicNC wrote:

    I'd be pretty upset if Google killed off Firefox. That said, there's basically zero chance I'd switch from Firefox to IE, which means I'd be forced into Chrome, which makes it a good move for Google...

    Maybe I'll donate some money tonight to the Mozilla team.

  • Report this Comment On December 06, 2011, at 3:34 PM, TMFNewCow wrote:

    DJDynamicNC,

    This is exactly why I think Google should do it. Let me be clear: I have nothing against Mozilla/Firefox. But speaking strictly from a business strategy perspective, I think taking away Mozilla support is the move that Google should make if it wants Chrome to become the No. 1 browser.

    Although I'd be interested to see how many search referrals Google actually attributes to its Firefox contract to see how much of an impact it could have on Google's search share.

    -- Evan

  • Report this Comment On December 06, 2011, at 4:34 PM, TradeDragonfly wrote:

    It doesn't have to kill Mozilla to be number one. Google has competent enough of a management team to take that place anyways. Chrome is smoother than Firefox is and virtually seamless. Compatibility is more of an issue for Firefox, at least in my own personal experiences. I have used both, but solely use Chrome now because of its superior quality and easy browsing. Google doesn't have to kill Mozilla, Mozilla will either die off because of its own doing or be acquired.

  • Report this Comment On December 06, 2011, at 5:29 PM, akakroke wrote:

    Google Chrome is akin to chrome plating; once loaded on a computer, it is impossible to completely eradicate unless you remember DOS commands and are willing to dive into it's depths to change each folder's then file's characteristics one by one and delete them.....

    Ha-ha, I'll never load 'that' browser again, not with OPERA, Explorer and Firefox around ... but then again today's surfers don't care about tracking and the like. In any event there are still enough of 'us' left to prevent the demise of Mozilla....

    akakroke

  • Report this Comment On December 07, 2011, at 2:54 PM, sheldonross wrote:

    @akakroke

    But is there enough tinfoil for your hats?

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