Google deal produces 88% of Mozilla's revenue

Separately, Mozilla notes IRS audit over 2005 income from partnership

The Mozilla Foundation's revenue was up 13% in 2007 over the year before, as the organization continued to profit from its partnership with search giant Google Inc., Mozilla's chairman said today.

"Our revenue remains strong; our expenses focused," said Mitchell Baker, Mozilla's current chairman and the former CEO of Mozilla Corp., in a post to her blog.

According to the audited financial statement Mozilla released today, the company's revenue for 2007 totaled $75.1 million, up 13% from 2006's $66.8 million, with the bulk of the year's income coming from Mozilla's search deal with Google.

Search royalty payments accounted for $68.2 million, or 91% of 2007's revenue, said Mozilla's financial statement; that percentage was down slightly from the 92% of 2006's income attributed to search.

About $60 million, or 88% of the search royalties, came from Google, with the remainder from other agreements Mozilla has with Yahoo Inc. and Amazon Inc. Interestingly, although Mozilla's total search revenues were down in 2007, the percentage attributed to the Google deal went up; in 2006, 85% of all search income, or $52.3 million, came from Google.

The agreement between Mozilla and Google pays the former for assigning the latter as the default search engine in Firefox, and for click-throughs on ads placed on the ensuing search results pages.

Mozilla renewed the deal with Google last August and signed a three-year contract that ends in November 2011. At the time, the agreement was set to expire this month.

Baker noted, however, that the growth in the revenue it received from Google failed to keep pace with the increase in Firefox's user base. "[Although] the Firefox user base and search revenue have both increased from 2006 ... search revenue increased at a lesser rate than Firefox usage growth as the rate of payment declines with volume," Baker said.

During the same period, the number of people using Firefox on a daily basis nearly doubled, Baker maintained, growing from 27.9 million in 2006 to 48.9 million in 2007.

The financial statement also showed that Mozilla's expenses ballooned in 2007, climbing 68% to $33.3 million from 2006's 19.8 million. Most of that increase was pegged to new spending on software development, which increased 75%, to $20.7 million in 2007 from $11.8 million in 2006.

"Expenditures remain highly focused in two key areas: people and infrastructure," said Baker. "By the end of 2007, Mozilla was funding approximately 150 people working full or part-time on Mozilla around the world." The biggest concentrations of paid employees are in the U.S., Canada and Europe, although it has smaller outposts in China, Japan, New Zealand and South America.

The statement also revealed that the Mozilla Foundation and Mozilla Corp. are being audited by the Internal Revenue Service in the U.S. The tax agency is "challenging certain deductions," said Mozilla.

Baker provided some additional information on the IRS investigation. "In 2005, the Mozilla Foundation established a 'tax reserve fund' for a portion of the revenue the foundation received that year from Google," she said. "We did this in case the IRS decided to review the tax status of these funds. This turns out to have been beneficial, as the IRS has decided to review this issue and the Mozilla Foundation. We are early in the process and do not yet have a good feel for how long this will take or the overall scope of what will be involved."

When she was still the CEO of Mozilla Corp., Baker was adamant that the company could do without Google's money if a tussle over Mozilla's independence strained the relationship. Since then, Google launched its own browser, Chrome, a fact that Baker mentioned only in passing -- and in connection with new browsers released or under development by other companies, including Apple Inc. and Microsoft Corp.

Firefox accounted for nearly 20% of all browsers used during October, according to data collected by Web metrics firm Net Applications Inc.

Copyright © 2008 IDG Communications, Inc.

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