Updated November 24 with additional details about Mozilla's financial results and a comment from a Mozilla spokesperson on the terms of the deal with Yahoo.
It’s been a very lucrative three years for the nonprofit Mozilla Foundation and its for-profit subsidiary Mozilla Corporation.
That’s the number-one conclusion to be drawn from the 2013 financial statements that Mozilla released today. (The report is online in PDF format here.)
In 2012 and 2013, Mozilla took in a bit more than $300 million per year from royalties paid by search providers. That total represented more than 97 percent of its annual income. And 90 percent of that royalty total came from one customer, who isn’t identified by name in the financial statement:
Mozilla entered into a contract with a search engine provider for royalties which expires November 2014. Approximately 90% of royalty revenue for 2013 and 2012, was derived from this contract. The receivable from this search engine provider represented 66% and 69% of the December 31, 2013 and 2012 outstanding receivables, respectively.
Spoiler alert: That unnamed search engine provider is Google, and its deal with Mozilla will end in just a few days. A, announced earlier this week, represents a major change in direction for Mozilla.
In 2009, Google’s contribution to Mozilla royalties was 84 percent. Five years later it’s up to 90 percent. Google paid approximately $275 million to Mozilla in 2012 and 2013.
We won’t know the numbers for the last year of that three-year deal until the end of 2015, but it’s safe to say the amounts are likely to be the same as in the previous two years. What was an eye-popping sum in 2011 doesn’t seem quite so extravagant now.
What’s interesting to note from this report is how quickly Mozilla’s expenses rose in the last two years as the flow of money from Mountain View surged.
In 2013, the company spent 94 cents out of every dollar it took in. Cash and investments went up only slightly in 2013 compared to 2012, with Mozilla ending the year with $78.5 million in cash and cash equivalents and $136.2 million in investments on hand. That's an increase of 6 percent from the previous year. By contrast, Mozilla spent only 67 cents out of each dollar it took in the previous year, increasing its cash and investments by more than 42 percent from 2011 to 2012, the first year of the Google deal. [This paragraph has been edited since it was first published to reflect the amount of investments on hand in addition to cash and cash equivalents.]
The biggest rise in the expense line over the years has been in software development, where expenses went up 39 percent in 2012 and then increased another 38 percent in 2013. Last year, more than two-thirds of Mozilla’s expenses went on that line, with software development costing just shy of $200 million.
Most of that money went to Mozilla’s ambitious plan to build a smartphone operating system to compete worldwide with Android. The introduction of Firefox OS in 2013 is the only new development mentioned by name in the report.
If revenues for 2014 remain flat, then Mozilla had to put on the brakes this year. That would at least partially explain the decision in March to end development of the, after nearly two years and several pre-beta releases.
It’s possible, even likely that the new deal with Yahoo is worth more than the flat-rate deal with Google. But we don't know, and Mozilla's Denelle Dixon-Thayer, SVP of Business and Legal Affairs at Mozilla, says those numbers will remain confidential, saying via email: "The specific terms of this 5-year commercial agreement are subject to traditional confidentiality requirements and we're not at liberty to disclose them. It is a revenue sharing arrangement."
Yahoo and Mozilla are both anxious to regain momentum that they’ve lost in recent years.
For Mozilla, the question is whether Firefox OS can do to Google in 2015 what Firefox the browser did to Microsoft in 2005. For that fight against Internet Explorer, Mozilla was able to compete against an opponent weakened by antitrust actions on three continents. Google has its share of pesky antitrust issues, but none have yet seriously threatened Google’s dominant position in search and its core revenue source of advertising.
For the Firefox browser, these are lean times. On the desktop, where time spent in the browser is declining, most users accept the default browser (Internet Explorer or Safari), and those who want to change are increasingly likely to install Google’s Chrome. The Firefox roadmap hasn't been updated since May 2, 2012.
Firefox is completely absent on iOS devices and on Windows Phone, and on Android devices, the one mobile platform where Firefox has a browser available for its adherents, it faces an even steeper uphill climb against Chrome.
In 2015, Firefox OS will have the same daunting challenge as Microsoft’s Windows Phone, trying to break into a market where two entrenched competitors are unlikely to budge.
How successful can they be? We won’t have the numbers to make that call until two years from now, when the results for 2015 are due to be released.