Pay To Stay

I’ve been thinking more about Google’s renewal of their search deal with Mozilla for Firefox. It’s fascinating on a few different levels. Most notably: Google is committing close to a billion dollars to bankroll a browser which is a rival to their own browser. 

Why?

Well, on the surface, they do get something out of the deal — something quite substantial. Firefox is a browser used by millions of people. Thanks to this deal, it means that almost all of those users will also be Google (Search) users by default.

I don’t know what the exact percentage of searches flowing through Firefox is, but you can bet it’s massive. Google searches mean Google ads shown. This is still by far their primary way of making money. Makes sense. Got it.

Okay, but…

At $300 million a year, it’s just about three times the size of the last deal they signed with Mozilla back in 2008. Interestingly enough, that deal was signed right before Chrome was unveiled to the world. You can certainly argue that the release and subsequent success of Chrome should have driven down the price of a Firefox search deal.  

While Firefox had success after the last deal was signed, rising to just about one-third browser market share worldwide, it has actually been in decline in for much of the past year. Why? Well, Chrome.

Chrome has been a monster in the browser space devouring not Internet Explorer market share, but Firefox share as well. In fact, Firefox market share is now below where it was when the last deal was signed in 2008, according to the numbers from StatCounter.

Think about that for a second.

In August 2008, Firefox had 26.08% of the browser market. IE had 68.91%. Chrome had 0% (again, it didn’t exist yet). Last month, Firefox had 25.23%. IE had 40.63%. And Chrome had 25.69%. Yes, Chrome is now ahead of Firefox.

So Google paid Mozilla 3x the amount they paid for a search deal in 2008 despite the fact that Firefox is actually in decline and doing worse relative to the market than it was back then. To be fair, the entire market is undoubtedly growing — but still, 3x? And 3x to what is now a (smaller) rival no less. 

So again: why?

The first reason that comes to mind is simple: a bidding war. When it was originally reported that the Google/Mozilla search deal had expired, a few people (including myself) started wondering if Microsoft might step in to save Mozilla with a Bing deal for Firefox. It turns out that wasn’t crazy at all. It seems that Microsoft was bidding to make Bing the Firefox default. And so was Yahoo (which, oddly enough, is powered by Bing). 

So Google committed to $300 million a year to keep Microsoft and Yahoo away, right? Perhaps.

Microsoft has been spending (and losing) billions in an attempt to make Bing a viable competitor to Google. The results have been underwhelming. If anything, they’re eating into Yahoo’s market share faster than Google’s — and again, Bing powers Yahoo search now. The snake is eating its own tail — and it’s paying billions to do so. But a Bing/Firefox deal could have helped Bing substantially. 

Let’s assume Microsoft was well aware of that. The company pouring money into their search engine probably wasn’t shy when pushing for a Firefox deal. But they apparently weren’t willing to go as high as $300 million a year. Why? Well again, given the previous terms and the state of Firefox, that number does seem insane. 

So why was Google willing to push the number to such an extreme, going higher than their main rival who arguably needed the deal much more? OpenDNS founder David Ulevitch had an intriguing hypothesis yesterday:

Now that’s interesting. Ulevitch postulates that more than the revenue brought in from Firefox searches or the potential market share lost to Bing, Google wants to protect itself from the antitrust watchdogs as Chrome continues to grow.

Given the antitrust inquiries Google is currently undergoing, this theory is by no means crazy. In fact, if this isn’t a reason Google is doing the Mozilla deal, perhaps it should be. 

Up until now, Google has been relatively safe in the browser space from a anti-competition perspective because unlike Microsoft (and Apple) they don’t control a desktop OS from which to distribute their browser by default. But increasingly, they have been using Google.com to try to get people to download Chrome. And if Chrome OS ever takes off, competition could become a real issue.

But even more pressing may be mobile. Right now, the browser on Android is seemingly just a generic browser. But increasingly, it’s sharing little bits here and there with Chrome. Soon, it will be Chrome. 

That means that Google will have a dominant OS (Android) pushing Chrome by default. And that will cause the antitrust guys to perk up, just as IE bundled with Windows did for Microsoft years ago.

But if Google can point to a billion dollar commitment in (basically fully) supporting Mozilla and Firefox, perhaps it will negate the Chrome problem. We’ll see.

One thing is certain: Google is not paying Mozilla a billion dollars out of the kindness of their hearts. Doing so would be irresponsible to their shareholders. Again, they’re paying all that money to a competitor. And they’re doing it at terms far beyond the previous terms and at a rate that not even their biggest competitor would match.

They’re paying to stay. Perhaps because they have to — for reasons that may not seem so obvious at first glance. 

Update: A follow-up.

  1. favors-unique reblogged this from parislemon
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  3. goddessofnature reblogged this from parislemon and added:
    Very interesting. A good read...interesting take...subject....
  4. emanuelkarlsten reblogged this from parislemon and added:
    Det här var intressant tycker jag - om varför...betalar 300 miljoner
  5. vertikar reblogged this from parislemon and added:
    Interesting read!
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