Most of Mozilla Corporation’s revenues come from royalties earned through Firefox web browser search partnerships and distribution deals. Back in 2008 Mozilla Firefox controlled over 26% of the browser market. Today, due to the market dominance of Google Chrome and Safari, Mozilla has less than 5% in market share. In 2021, Mozilla Corporation generated $441 million in royalties, which represented almost 89% of its income.
The origin story of Firefox
In an interview, with Lef Fridman, Brendan Eich, co-founder of Firefox, explained the context, which led to the development of Firefox:
Netscape got acquired by AOL which as I say was a reasonably happy ending for a lot of people because Netscape otherwise was going to go out of business because Microsoft was just killing its market.
There was no way to charge for a browser Windows came with IE (Internet Explorer).
Let’s remember, that back then, in the mid-90s, browsing had become a commercial killer application. One of the first applications, showcased the potential of the Internet, at the commercial level.
In that context, Netscape, started by James H. Clark and Marc Andreessen, had put together the team, which had worked previously on Mosaic, the Internet browser, which was dominating the market in the mid-90s.
The newly formed team at Netscape had built a successful browser, so much so, that Netscape took over market shares from Mosaic, thus becoming, the market leader.
Yet, this also awakened Microsoft, which had primarily invested most of its resources to build the Information Superhighway (which would turn out to be a fad) and instead had grasped the importance of browsing, when Netscape had already taken over, in 1995.
Thus, Microsoft, to speed up the process, of gaining traction on top of the browser market, built its own browser, Internet Explorer, which, got started by licensing the code of Mosaic (losing popularity in the browser market).
While the first version of Internet Explorer, could not compete with Netscape, in the upcoming releases, Microsoft’s browser improved substantially.
Thus, posing a survival threat to Netscape, which would be eventually bought by AOL, in 1998, for $4.2 billion.
This money would be a substantial exit for James H. Clark and Marc Andreessen. Marc Andreessen, in particular, has become the most prominent venture capitalist, with a16z.
Brendan Eich recounts the story of the early days of Firefox, Mozilla’s browser.
Indeed, as AOL had acquired Netscape, since Mozilla had started as an experimental project, within Netscape, prior to the acquisition, it witnessed a change in attitude toward the project, as Netscape became part of AOL:
IE4 was pretty good and Netscape 4 wasn’t that good, it took a while to get better but the next game executive said let’s do
an open source escape pod…
…So we did Mozilla in 1998 and it looked like it was going to initially just give the world of open source browser but it’s really hard to get people to work on this sort of hairball that had been hacked up over by that point four years.
It also couldn’t have the crypto module for secure sockets so-called or now transport layer security that was an electronic munition.
We were not allowed to release that in the full 1024-bit key strength.
And yet people one of whom i happened to meet previously at SGI when i went on a sales support engineering trip – Tim Hudson in Brisbane, Australia and
Eric Andrew Young did what became open SSL.
It was called SSL EAY after Eric’s initials.
And Tim and Eric took their open SSL outside of the purview of the NSA and the department of commerce and they stuck it into Mozilla’s code. and that was perhaps the best hack that was done in the first few months after we open sourced the browser…
…We didn’t know what AOL will do to us turns out they didn’t interfere with us for a long time but Netscape wasn’t the best steward of Mozilla we were operating Mozilla as a pirate ship without a legal entity so most of us worked for Netscape under a separate organization and initially the first engineering
manager – Tom Paquin of Netscape was the Mozilla founding manager but he left pretty quickly and he left me as the acting manager which is more like method acting in my case and I did that was my first management stint but the
someone who’d written the licenses- Mitchell Baker – She was a lawyer at Netscape she was involved in the open source license decision making and the actual writing and construction of those licenses that was Mitchell’s job Netscape public license and the truly open Mozilla public license and there were two because Netscape needed because of some uncovered code needed some special rights but that went away over time.
…in 2001 Mitchell called me up and said I’m no longer employed…”
Mitchell, together with a core development team helped shape the early days of Firefox:
Mozilla corporate structure
Mozilla Foundation was established in 2003 as California not-for-profit corporation. At the same time, the foundation has a wholly-owned for-profit corporation, Mozilla Corporation.
The Mozilla Corporation serves the non-profit foundation, and it comprises subsidiaries present in Canada, Europe, China, and other international branches.
Mozilla monetization strategy
The majority of Mozilla Corporation’s revenue is from royalties earned through Firefox web browser search partnerships and distribution deals. Precisely about 88% of Mozilla revenues came through royalties received by search engines to be featured on its Mozilla Firefox browser.
In 2017, Google closed a deal with Mozilla to be the primary search engine, by putting an end to a previous deal with Yahoo. As reported by Bloomberg, Firefox’s default search engine will be Google in the U.S., Canada, Hong Kong, and Taiwan.
Previous to the Yahoo deal Googe was already the default search engine for Firefox until Yahoo promised over $300 million a year of royalties to Mozilla, which made it go with it. That might have caught me by surprise Yahoo, which as pointed out on Bloomberg, by Charles Stewart, a spokesman for Verizon’s digital advertising business, Oath.
We are surprised that Mozilla has decided to take another path and we are in discussions with them regarding the terms of our agreement.
I pointed out in “Why Google Success Was The Fruit Of Its Business Distribution Strategy” how Google’s perfect execution in business deals made it the successful company it is today. We don’t know yet how much Google offered to secure the deal with Mozilla again, but we can assume that it was a substantial offer.
The anatomy of the Yahoo deal: did Yahoo make money from the deal with Mozilla?
Distribution is a critical component of the search market. Search engines like Google, Yahoo, and Bing’s success depend on their ability to be featured on several devices on the web. The key middleman between a search engine and its user is a browser. While back in 2008 Google managed to launch its own browser, Google Chrome, Yahoo instead had to secure its distribution primarily via third-party browsers.
As reported on Yahoo financials for 2016:
For the year ended December 31, 2015, revenue and TAC increased $350 million and $660 million, respectively, or 8 percent and 303 percent, compared to 2014.
As pointed out in the same report:
The increase in revenue for the year ended December 31, 2015 was primarily attributable to an increase in search and display revenue resulting from an increase in revenue from distribution partners, including Mozilla Corporation (“Mozilla”)
What were the additional revenues Yahoo recorded thanks to its Mozilla deal?
This increase resulted from higher search volume on desktop due primarily to the Mozilla Agreement, which contributed $394 million
If we stick to the number given by Yahoo financials, it seems to be $394 million in 2015.
What cost does Yahoo have to bear for that distribution and traffic acquisition?
Cost of revenue—TAC for the year ended December 31, 2015 increased $660 million, or 303 percent, compared to 2014, primarily due to increased payments to distribution partners (including Mozilla which contributed $375 million)
If we stick to this number, the traffic from Mozilla was priced for Yahoo at $375 million. Therefore, Yahoo recorded at least $19 million from the traffic coming from Mozilla Firefox.
A quick glance at the browser market: Once the leader Mozilla is now
According to StatCounter back in 2008, Mozilla Firefox represented over 26% of the browser market. Nowadays this percentage has declined substantially due in part to the market dominance of Google Chrome and Safari.
The browser market has still critical and strategic importance for the search market. Indeed, in 2017 Google offered a few billion to be featured as a default search engine on Safari and it still does. Therefore, keeping an eye on how the browser market is evolving is critical to understanding who will be the dominant player in the search market.
Understanding the open-source driven business model
Open-source is a software licensing model, where the holder of the copyright gives the chance to anyone to study or perhaps reproduce the code. It’s important to understand the key difference between open-source-driven business models, and freemiums.
In an open-source the software has been often developed as an effort by a community of developers, coming together and all contributing to it. Thus the software isn’t proprietary or kept secret, but rather released openly.
On a freemium instead (think of the case of Slack) the software is developed internally, it’s proprietary and released with tight copyright. In that case, the company owning the software will monetize it in different ways (in some cases it can be ad-supported like Spotify), in other cases, it simply is sold as a premium version (Slack).
Thus the freemium gives the company that developed it full control over its distribution. In an open-source model, instead, there is usually a non-profit organization (a foundation) that holds the property of the open-source licensed software. The foundation can run through donations or perhaps royalties.
In some instances an adjacent corporation is created, that collects the royalties from the open-source (just like Mozilla Foundation and Corporation).
A further look into Mozilla’s revenues
Thus, when we look at Mozilla, while the browser is free, it enables monetization through deals with search engines to be featured as a default choice within its browser. And it now also makes money via a subscription service.
As the Mozilla foundation highlighted in its financial reports:
Mozilla provides a Firefox web browser, which is a free a open-source web browser initially developed by Mozilla Foundation and Corporation. Mozilla incorporates search engines of its customers as a default status or an optional status available in the Firefox web browser. Mozilla generally receives royalties at a certain percentage of revenues earned by its customers through their search engines incorporated in the Firefox browser.
Subscription revenues consist of income coming from a service called Pocket Premium, which is a premium subscription enabling advanced features (like full-text search on saved articles, removal of advertising, highlights, and more). In February 2020, Mozilla also launched its VPN.
- Monetization Strategy: Mozilla Corporation generates most of its revenue through royalties earned from search partnerships and distribution deals involving its Firefox web browser.
- Royalties from Search Partnerships: These partnerships involve search engines paying Mozilla to be the default search engine in the Firefox browser.
- Main Income Source: In 2021, royalties accounted for around 89% of Mozilla’s income.
- Google’s Role: Google became Firefox’s primary search engine partner in 2017, replacing a previous deal with Yahoo.
- Subscription Revenues: Mozilla also generates revenue through subscription services such as Pocket Premium and a VPN service launched in 2020.
- Origin of Firefox: Firefox was developed as a response to changing dynamics in the browser market during the mid-90s. Netscape’s acquisition by AOL and Microsoft’s entry with Internet Explorer prompted the creation of Firefox.
- Challenges and Innovations: Firefox’s development faced challenges such as incorporating secure socket technology and involving external contributors in open-source projects.
- Mozilla Foundation and Corporation: Mozilla Foundation oversees the development of Firefox as a non-profit entity. Mozilla Corporation, a for-profit subsidiary, handles business and revenue aspects.
- Importance of Search Engine Partnerships: Mozilla’s financial health heavily relies on partnerships with search engines, which pay to be featured as Firefox’s default search engine.
- Browser Market Share: Firefox’s browser market share declined to less than 5% by 2021 due to the dominance of Google Chrome and Safari.
- Subscription Services: Mozilla expanded its revenue streams through subscription services like Pocket Premium and a VPN service launched in 2020.
- Diversification: Subscription services provide Mozilla with an additional revenue source beyond search partnerships and browser usage.
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