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.
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.
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 naïve 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.
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.
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.
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.
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.
Wolfgang Gruener in Business on December 27
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