Yahoo! and Mozilla – Face not wallet

The loss of Firefox hurts image and more than revenues.

• Yahoo! and Mozilla have announced that Yahoo! will replace Google as the default search engine within the Firefox Internet browser.
• This change marks the end of the 10 year deal in which Google was the default search provider for Mozilla.
• Mozilla and Yahoo! have signed a 5 year deal where no details were disclosed.
• Through the Firefox browser Mozilla was acquiring traffic on Google’s behalf and its share of those revenues made up the vast majority of Mozilla’s revenues.
• In 2012A (last available figures) Mozilla had $311 in revenues where I think Google was probably responsible for around 85%.
• Google typically pays away 20% of its gross search revenues to those that source traffic on its behalf implying that something in the region of $1.3bn of its gross search revenues was coming from traffic sourced from Firefox.
• In 2012A Google’s gross search revenues were $37.6bn meaning that being the default search provider to Firefox represented only 3.5% of revenues.
• Consequently, I suspect that this means that the loss of Mozilla is unlikely to have much impact on Google’s ability to earn revenues from search.
• This is especially the case as since 2012A, Firefox’s desktop browser share has declined from 22.5% to 14.2% while Chrome’s share has risen from 17.6% to 21.1% (see here).
• Add this to the fact that Yahoo! is desperately trying to gain share in search, and it is not difficult to see how Yahoo! was willing to pay more to be the default search provider than Google was.
• Furthermore, I suspect that Mozilla was keen to get away from Google given that it is actively trying to lure users away from Firefox to its own Chrome browser.  
• As a result Yahoo! clearly makes a better match for Firefox than Google does and both parties had an incentive to see a deal done.
• Hence, Yahoo! is probably paying much less than some commentators may think, but probably more than the 20% gross search revenue share that Google was paying.
• Whether, this transaction meaningfully lifts Yahoo!’s search revenues has yet to be seen as one must not forget that Google is better at monetising traffic that comes in than Yahoo! is.
• Net net this is a good deal for Yahoo! and it should have some top line impact but the loss to Google is probably more face than wallet.
• I would still pick Google over Yahoo! in the short term, given Yahoo!’s inability to execute on the assets it has already acquired.