Yahoo's annual payments of $375 million to Mozilla for making the search provider Firefox's default in the U.S. increasingly looks like a bad deal for Yahoo as Firefox's user and usage shares continue to contract.
According to documents filed with the U.S. Securities & Exchange Commission (SEC), Yahoo paid Mozilla $375 million in 2015, and is obligated for the same amount each year through 2019 under a five-year contract.
Yahoo's annual payment was about $100 million more than Google paid Mozilla during their last deal, which ran from late 2012 to late 2014. Mozilla ended its association with Google in November 2014 when it switched to Yahoo to generate revenue. Computerworld arrived at Google's annual payments of $275 million using Mozilla's financial statements, the most recent of which portrayed 2014.
Charles Arthur, formerly the technology editor for The Guardian, first reported on Yahoo's $375 million payments to Mozilla in a piece published on Tech.pinions. Arthur had mined Yahoo's annual report, which was filed with the SEC on Feb. 29, in which the Sunnyvale, Calif. company spelled out its traffic acquisition costs, or TAC.
But as Computerworld has noted before, Firefox's user and usage shares, both global and U.S. only, have been in a long-term slump. With a diminished share, Firefox makes a less effective search vehicle for Yahoo.
Since the November 2014 Yahoo-Mozilla deal went into effect, Firefox's global user share as measured by Net Applications has fallen 2.7 percentage points, representing a 21% decline.
Firefox's slide has not been as dramatic in the U.S., according to another browser metrics source, Irish analytics firm StatCounter, which portrays usage share based on page views. StatCounter's data is more analogous to activity rather than estimates of the number of users who run a specific browser, as is Net Applications'.
By StatCounter's figures, U.S. usage of Firefox fell by more than one and a half percentage points, representing a decline of about 12%.
During the November 2014-March 2016 stretch, both Yahoo and Firefox initially saw their usage shares climb in StatCounter's tallies. Yahoo's search share peaked at 10.2% in January 2015, a two-month growth rate of 15%; in April 2015, Firefox hit a high of 18%, representing a 19% increase over November 2014.
But since those crests, Yahoo and Firefox shares have slid: Yahoo's U.S. search share was 6.6% in March, off 23% from November 2014 and down 35% from its height. By March 2016, Firefox was down 25% compared to its April 2014 zenith.
For 2015, Yahoo said that the deal with Mozilla had turned a profit. In its annual report, it stated that the contract resulted in an additional $394 million in revenue. By subtracting the $375 million payment, Yahoo's return was $19 million, for a profit margin of about 5%.
Whether that can be repeated in 2016 is unclear; at the moment it appears doubtful. In the first three months of this year, Firefox's U.S. usage share was down 10.2% from 2015's annualized share. If that drop-off is maintained throughout 2016, and Firefox's lower share resulted in a corresponding decline in the revenue generated by Yahoo from the partnership, Yahoo would recognize $40 million less than last year, putting it in a $21 million hole on the deal.
As Arthur pointed out, also unknown is what may happen to the Yahoo-Mozilla contract if or when Yahoo unloads its core businesses, as it is currently exploring. Computerworld was unable to find any SEC filings by Yahoo that spelled out the contract with Mozilla to, for instance, determine whether it had a cancellation clause.
If the deal did not provide for cancellation, Yahoo's new owner will owe Mozilla $1.5 billion over the next four years.
The fact that Yahoo said it "is obligated to make payments" through 2019 to Mozilla hinted that a buyer would be committed to maintaining the contract and the $375 million annual payments.
This story, "Yahoo's Firefox deal risks dropping into the red" was originally published by Computerworld.