Microsoft Is Why Firefox Is Worth A Billion Dollars To Google

Analysis ? Google is rumored to be paying at least $1 billion in advertising revenue, or royalties, depending on your view, to Mozilla over the next three years. This investment may seem over the top, especially since Mozilla has seen its market position weaken in 2011 and since we have seen plenty of public Mozilla firing poisoned darts in the direction of Google?s Chrome team. However, even at a billion dollars, it?s a good idea for Google to have Mozilla on its side. It appears that Mozilla has played its cards very well.

The deal between Mozilla and Google is a perfect example how complicated the browser landscape has become and how critical it is to the core businesses of those who aim to control a major portion of the next computing era that will be focused on software services rather than software that is installed locally and processes most of its data offline. It is also a sign for users that especially Google and Microsoft are competing for their attention and they will go to extreme lengths to bind users and keep them from straying away.

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Scatter Shooting

There has been an unusual amount of speculation why Google may pay that much for a browser that apparently is in an unstoppable decline and has fallen off the cliff of user interest. A Chrome developer as well as Firefox product manager Asa Dotzler responded to that speculation with posts that balance each other out, but may not reveal the entire picture of the relationship between Google and Mozilla, which is still very much defined by symbiotic advantages today. Much of the impressions we get today from either side are possibly incomplete and confusing as a result.

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Peter Kasting and Asa Dotzler

Google?s Peter Kasting has published a rant on Google+ and complains that no one understands why Google has an interest in Mozilla. He explains that ?the primary goal of Chrome is to make the web advance as much and as quickly as possible. That?s it. It?s completely irrelevant to this goal whether Chrome actually gains tons of users or whether instead the web advances because the other browser vendors step up their game and produce far better browsers. Either way the web gets better. Job done. The end.? At $1 billion, some may argue that this is a rather expensive venture and it may be difficult for Google?s CFO to explain to shareholders that there is just too much money laying around at Google to find other ways to invest into ventures that actually increase its revenues and profitability. Admitted, Kasting concludes that ?Google succeeds (and makes money) when the web succeeds and people use it more to do everything they need to do.? However, one would be very na?ve to believe that Google is interested in a constantly improving Internet to improve our lives. We may be closer if we said that the Internet will improve in the way it best aligns with Google?s interests.

Asa Dotzler, Firefox product manager, took a different direction to explain the deal. Dotzler explained that the deal is about advertising revenues and since Mozilla still delivers substantial value in that respect.

Market scenario at the end of 2011, outlook for 2012

As we are approaching the end of this year, we are seeing Firefox stabilize in market share just above 25%. Our estimate is that StatCounter will report about 25.43% for this month, which is down 5.25 points or 20.64% for the year. Chrome will be posting its best month yet with a net gain of 1.56 points this month and climb to 27.25%, up 11.59 points or 42.50% for the year. Microsoft will be dropping below 40% for the first time and land at about 38.60%, down 7.4 points or 19.17% for the year. As Microsoft?s advertising campaign for IE ran out in December, IE experienced a sudden drop in market share, down 5.0% from November and its steepest decline in 24 months.

Our estimate currently sees Chrome overtaking IE as the dominant browser In Q3 of next year. The introduction of Windows 8 is unlikely to have a major impact on browser market shares. Mozilla is dealing with a bunch of problems, especially feature delays that have made it nearly impossible for the company to recover and return to possible growth in H1 2012. However, H2 will be the timeframe where Firefox could get interesting again.

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Negotiation Leverage

One of the key lessons in successful negotiations is to follow an aggressive path that is driven by selfish motives. While it is good to know as much as you can about your opponent, it is more important to know what you want and understand what you can get. If you know your value, your leverage grows and it?s easy to walk away from a deal if you don?t get what you want. That strategy works in simple environments such as dealing with a car sales people and it works when you are dealing with contracts that are worth billions of dollars. Mozilla has strong leverage and all information we have point to a setup of the talks that were handled by Mozilla?s executive team extremely well.

Mozilla?s primary leverage was not market share. Microsoft was Mozilla?s leverage. Since the development of a Bing?ed version of Firefox it was more than clear that Microsoft is interested in Mozilla?s user base to use Bing instead of Google. Rumor has it that Microsoft was willing to guarantee Mozilla up to $250 million per year in search box royalties, a number that was fueled by Microsoft trying to get hooks into Google?s business. Now that Google has prevented a Mozilla/Microsoft partnership, it would be interesting to know whether this new deal comes with certain conditions such as special support for Mozilla from Google, or a limitation whether a default Bing-version of Firefox is still possible or not.

Advertising, Advertising x2

Advertising is, of course, still a big deal. Mozilla still has 400 million users and those users generate ad revenues. If Mozilla still has 25% of the browser market, it is safe to say that the lion?s share of those users will stick with the default search engine and that is good news for Google. More importantly, however, Google made sure that those 25% did not go to Bing. Consider the investment to carry protective value as well.

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Chrome follows Firefox follows Chrome

Given Chrome?s strong growth and the fact that Firefox revealed an extremely volatile user base on its edges this year, there was the clear implication that Firefox could become an important tool for Microsoft to work against Google while securing space for IE9 and IE10. Also, consider the fact that neither IE nor Chrome has the market majority at this time and it is unlikely that either one will gain it in the near future. However, both can gain market leadership with the support of Firefox. With Firefox as a technology partner, Google has 53% of the browser market and Microsoft would have 64%. It is much easier to push new features out into the market with Firefox than without. A partnership facilitates such an environment in reasonable terms. In the past Chrome adopted browser features that were first pitched by Mozilla staff, but were developed much faster for Chrome. This has been the case, for example, for the modification of the location bar layout or the integration of the Gamepad API. However, Google will also need Firefox to quickly adopt new features that are put into Chrome (and that make sense for Firefox as well ), such as SPDY. The additional funding should help Mozilla build out its resources and add features faster.

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Migration Path: IE > Firefox > Chrome

Both Mozilla and Microsoft are struggling with user loyalty these days. While the two are trying to figure out how to not lose users, Google is harvesting the users both drop. In 2010, the user migration path was mainly from IE to Firefox to Chrome, but began to change as Firefox 4 was increasingly delayed and it appeared that IE users were directly moving toward Chrome as well. In the end, Google could care less if its Chrome users are coming from IE or Firefox, but having IE users migrate to Firefox as well and establish a well-defined migration path is in Google?s interest to strengthen its market position as far as advertising is concerned.

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Antitrust Issues

Peter Kasting indicated that Google does not view Firefox as a rival, while Mozilla left no doubt about the fact that it sees Chrome as a rival. Let?s be honest and admit that both browsers are competing for market share and there is a competitive environment as a result. Dramatic changes to a market always draw attention and if they are serious enough, the government will get involved. Neither Google nor Microsoft can afford that Firefox goes away, but both need Firefox as an alibi to be able to push their respective strategies. With Firefox around, it?s a thriving market that values competition and remains antitrust-concern free. Even better if both sponsor Mozilla and a $1 billion payment goes a long way preventing anyone at the DOJ from getting silly thoughts. In a way, this investment could give Google a carte blanche to develop Chrome and push the browser in any way it wants to.

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Source: http://c.moreover.com/click/here.pl?r5670623877

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