Despite Chrome, Google continues to feed Mozilla – but for how long?

Mountain View (CA) – Yesterday’s Chrome announcement has sparked rumors what may happen to Google’s relationship with Mozilla now that it has its own web browser. Last week, Google renewed a royalty deal with Mozilla, which will run through November 2011, providing the open-source organization with a new three-year lifeline. Funding Mozilla remains the cheapest strategy for Google to control the Internet Explorer’s influence and market share, however, a Google web browser adds a variable to that equation that may change the outcome of the Mozilla relationship when the agreement expires in three years, especially if Chrome can capture market share quickly.

Google isn’t Mozilla’s only income source, but there is no denying that Mozilla would not be what it is today and Firefox would not look like as it does today. According to Mozilla’s most recently published tax statements (fiscal year 2006 ended December 31, 2006) reveals that Mozilla had sales of $67 million at the time, $57 million of which came from Google, because of Firefox’ use of Google as default home page and revenues from ad placements.   

The original two-year deal was set to expire this November but the two companies recently extended the deal to another three years, through November 2011. “We’ve just renewed our agreement with Google for an additional three years,” Mitchell Baker wrote  in his blog post last week. “This agreement now ends in November of 2011 rather than November of 2008, so we have stability in income.”

Mozilla has put the money from Google to good use so far, continuously improving Firefox and capturing market share at the expense of IE. According to NetApplications, Firefox’s market share was 19.22% in July and 19.73% throughout August. With almost one in five users running Firefox now, Google is unlikely to cancel its support for Mozilla to promote further market share gains. At the current pace, Firefox could grab one third of total browser market by the time the deal with Google expires on November 2011. What will happen in November 2011 is the million dollar question. Some analysts think Google will continue supporting Firefox. But Google could as well cut the funding if its Chrome browser takes off significantly by that time.

In the meantime, Mozilla’s independence is questionable to say the least. The organization’s future clearly depends on the search giant. Google accounts for 85% of the organization’s sales, as far as we know. Additionally, last year it was revealed that Google contributed to some Mozilla employees’ salaries. Baker disagrees, claiming that Mozilla would abandon its lucrative partnership if that is what it takes to remain independent. “We’ve spent a lot of time and energy making sure that Google understands that it cannot turn us into an arm of Google,” he told Computerworld last year. “If the protection of our independence would come into conflict with Google, or any of our search partners, we would opt for the community who built Firefox and love Firefox.”

And Baker said Mozilla is prepared for that day. “We have a rainy day fund just for that reason. With that, we feel we can pay the mortgage for some period of time if we had to walk away.” Mozilla’s financial report reveals the size of this fund: $13.2 million in cash and $50.8 million in investments at the end of 2006. With expenses just shy of $20 million, a rainy day fund could sustain Mozilla for some time. However, the organization clearly needs to create other income sources for the worst-case scenario.

For now, it is business as usual and we are sure that Mozilla and market watchers will have a close eye on how Google will be leveraging its countless business relationships to push its Chrome browser. Besides the fact that it has a search market share of more than 60% in the U.S., its software is included by default on many new PCs, it has partnerships with industry giants such as MySpace and Ebay, it owns YouTube, it works on integration its software in gas station pumps there is a mobile search deal with Verizon in the works and the company is apparently interested in acquiring Digg.

How quickly Google’s strategy and intentions can change shows a May 2006 from Google CEO Eric Schmidt. In a conference call with analysts, the executive commented on the back then browser discussion that “the industry is obsessed with this browser question.” Claiming that Google’s “observation is that you have a number of fine browsers now, [and] people have some good choices”, he cited nearly every brand except Microsoft’s Internet Explorer 7 as making good gains, including Firefox, Opera, and Safari for the Macintosh.

Anyone wants to ask Schmidt about this quote now?