Yahoo! Inc. (NASDAQ:YHOO) might lose money on the Firefox contract they made in 2014. Yahoo! pays $375 million annually to Mozilla making it the default search provider on the Firefox browser in the US. The contract is increasingly looking like a bad deal for Yahoo! due to the decreasing number of shares of users of the Firefox brand.
Documents which were filed with the US Securities &Exchange Commission (SEC), show that Yahoo paid around $375 million to Mozilla in 201, and under a five-year contract which stretches up to 2019 are obligated to do so.
Yahoo’s annual payment is $100 million more than Google paid during the last deal that Mozilla had struck. Google’s deal with Firefox ran from 2012 to 2014, and the deal was ended by Mozilla as they bid to generate more revenue through a new deal. The Google contract fees were derived from Mozilla’s financial statements, with the most recent being that portrayed in 2014.
Firefox users and usage shares, both international and in the local US market, continue dwindling down. And with a small and diminished user share on the market, the deal does not make sense and is less effective for Yahoo as a search engine.
Since the two tech giants signed the deal back in November 2014, Mozilla Firefox’s user and usage shares in the market have fallen down by 2.7 percentage points, which represents a 21 percent decline, as reported by Net Applications.
Another metrics source, however, shows that Firefox’s slide has not been as dramatic in the US. Irish analytics firm, StatCounter, which calculates usage shares based on page views, has more analogous data to activity rather than the estimates of users who run a specific browser, as what Net Applications does.
StatCounter’s figures show that, in the US, Firefox fell by one and a half percentage points, which roughly translates to a decline of about 12 percent.
During the November 2014 – March 2016 period, Yahoo and Firefox both saw an increase in their usage shares as calculated by StatCounter. Yahoo’s usage shares rose and peaked at 10.3 percent in January 2015, which signifies a two-month growth rate of 15 percent; while for Firefox, they hit a high of 18 percent in April 2015, which represents an increase of 19 percent since November 2014.
However, since peaking with those numbers, Yahoo and Firefox shares have slid down. Yahoo’s US search share was down at 6.6 percent in March, off 23 percent from November 2014 and further down 35 percent from its highest point. In contrast, Firefox was also down 25 percent from its April 2014 high.
Yahoo said their deal with Mozilla had turned a profit in 2015. In the annual report released, the company stated that the contract with Firefox had brought in an extra $394 million in revenue. If you subtract the $375 million that Yahoo pays for the contract annually, then Yahoo’s return on the contract is $19 million for a profit margin of around 5 percent.
Repeating the same feat in 2016 at the moment is highly doubtful. Firefox user and usage shares were down by 10.2 percent over the first three months of the year. If the trend continues and Firefox, Yahoo would probably see $40 million less than last year’s figure, which would put them in a $21 million hole on the deal.
And since Yahoo is exploring selling its core business, if the deal does not have a cancellation clause, the new owner might just have a $1.5 billion debt to Mozilla right from the start over the next four years. Yahoo hinted that they are obligated to make payments for the next four years, means whoever buys the core business also maintains the contract.