Just when you thought the smartphone and tablet market couldn’t get any more crowded, Mozilla – the privately held creator of Firefox – has thrown its hat into the ring with new mobile devices powered by its own Linux-based operating system, Firefox OS. Will this new challenger have any impact on a market divided between two major software players – Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) – or will it burn out and fade into obscurity like Hewlett-Packard Company (NYSE:HPQ)’s WebOS?
How does Mozilla generate revenue?
Mozilla’s Firefox browser, which is the direct descendant of the now-defunct Netscape Navigator, accounts for 25% of the global web browser market. This is ahead of Google Inc (NASDAQ:GOOG) Chrome’s 13% but it still trails Microsoft Corporation (NASDAQ:MSFT) Internet Explorer’s 53% market share. In addition to Firefox, Mozilla also produces other open-source software such as the SeaMonkey browser and the Mozilla Thunderbird email client.
Source: www.netmarketshare.com
Mozilla Corp. is a taxable subsidiary of the non-profit Mozilla Foundation. Although Mozilla Corp. is a private company, it reported that it generated $163 million in revenue in fiscal 2011, a 33% increase from the $123 million it reported in 2010. Approximately 85% of its annual revenue originally came from a contract with Google Inc (NASDAQ:GOOG), which made it the default search engine in Firefox’s search box. After Mozilla and Google parted ways at the end of 2011, Yahoo! Inc. (NASDAQ:YHOO) filled the void with a similar contract, which now makes it Firefox’s default search engine.
The Firefox smartphone and tablet
At Barcelona’s Mobile World Congress in February, Mozilla revealed that it had signed agreements with Alcatel Lucent SA (NYSE:ALU)’s TCL Communication Technology, LG Electronics and ZTE Corp. to manufacture the first generation of Firefox OS devices. Chinese smartphone giant Huawei is also expected to release a Firefox OS handset later this year.
All of these upcoming smartphones, aimed at emerging markets, will be powered by QUALCOMM, Inc. (NASDAQ:QCOM)’s Snapdragon mobile processors. This accelerated production schedule strongly suggests that Asian manufacturers are taking full advantage of QUALCOMM, Inc. (NASDAQ:QCOM)’sQRD (Qualcomm Reference Design) program, which provides handset manufacturers with QUALCOMM, Inc. (NASDAQ:QCOM)-based hardware templates. This reduces the development time of most handsets to two months, from start to launch – a process that originally took up to a year and a half.
Meanwhile, Apple Inc. (NASDAQ:AAPL)’s primary manufacturer, Taiwan-based Hon Hai Precision (Foxconn), recently revealed that it was teaming up with Mozilla to create the first Firefox OS tablet. This is a surprising turn of events, considering that Apple’s contracts account for approximately 60% of Hon Hai’s top line. Industry watchers have speculated that Hon Hai is attempting to diversify away from Apple Inc. (NASDAQ:AAPL), which it blamed for a lower-than-expected net profit last quarter. Most of Hon Hai’s mobile products run on iOS or Android.
Firefox OS is a web-based, open-source platform, running primarily on HTML5. Since HTML5 is a common web standard across multiple platforms, Firefox OS will immediately be able to run most apps and games written in HTML5, just as software written in Oracle Corporation (NASDAQ:ORCL)’s Java can be compiled and executed across multiple desktop and mobile devices. This means that Firefox OS will have an instant software library upon launch, although the HTML5 software must be run from within a web browser. This is where Firefox shines – its entire operating system will be a web browser, which will make running these apps a seamless experience. In fact, even the smartphone’s dialer is an app coded in HTML5.
What this means for other companies
First and foremost, Firefox OS isn’t about to steal market share away from Apple Inc. (NASDAQ:AAPL) or Samsung, which control the higher-end markets. Yet in emerging markets, where the Firefox browser is already well known, Firefox OS devices could effectively compete with lower-end devices fromNokia, such as the Asha 302, and upcoming ones from Research In Motion Ltd (NASDAQ:BBRY). However, it is a tough, fragmented market down in fourth and fifth place – where lesser-known Linux-based products such as the Ubuntu Touch and Tizen are fighting for the remaining pieces of the market.
However, Microsoft Corporation (NASDAQ:MSFT) might not consider Firefox OS to be a threat to its Windows Phone market, but rather an opportunity. Since Microsoft Bing currently powers Yahoo (NASDAQ:YHOO)! searches, and Yahoo! Inc. (NASDAQ:YHOO) is Firefox’s default search engine, then searches through Firefox OS devices would be redirected back through Bing. This could help grow both Yahoo! and Bing’s combined 7.7% share of the global search market against Google Inc (NASDAQ:GOOG)’s dominant 88.8%.
Source: www.karmasnack.com
For Microsoft Corporation (NASDAQ:MSFT), this also means that it has a new way to generate mobile advertising revenue, which is nearly non-existent compared to ad sales from mobile advertising leaders Google, Facebook Inc (NASDAQ:FB), Pandora Media Inc (NYSE:P) and Twitter.
Why Yahoo! should invest in Mozilla
Over the past few months, Yahoo! Inc. (NASDAQ:YHOO) has been on a shopping spree, adding many mobile-based startups to its ecosystem. Yahoo! recently added social blogging site Tumblr to compete against Facebook Inc (NASDAQ:FB) and Google, and is currently bidding for video streaming site Hulu. This is all part of CEO Marissa Mayer’s grand plan to unify Yahoo! into a cohesive ecosystem, which is its primary weakness versus Google Inc (NASDAQ:GOOG). While Google is able to tie together all of its services neatly through its mobile operating system, web browser and cloud-based apps, Yahoo!’s island of misfit toys still lacks unity, despite the recent release of an enhanced mobile app.
Yahoo! Inc. (NASDAQ:YHOO) has also tried to team up with Apple, but that partnership only guarantees a few upcoming Yahoo! apps for iOS. Both Apple Inc. (NASDAQ:AAPL) and Yahoo! are aligned with too many other conflicting parties for that partnership to grow into anything more. Apple Inc. (NASDAQ:AAPL) still has a contract with Google to use its search engine for default iOS text searches, and Yahoo! is tied to Microsoft Corporation (NASDAQ:MSFT) for its search results, thus shattering the dreams of a unified Apple-Yahoo! operating system.
To solve these problems, I believe that Yahoo! Inc. (NASDAQ:YHOO) should invest heavily in or acquire a majority stake in Mozilla, which is valued between $2 billion to $4 billion. Yahoo! could then make the Firefox browser its own, integrating the same sign-in system that Google Inc (NASDAQ:GOOG) Chrome uses to synchronize its bookmarks and ecosystem across multiple devices. Yahoo! could develop its own HTML5 app store, which could feature apps that could be used both in the desktop browser and on mobile Firefox OS devices. Yahoo’s mobile ad revenue would rise substantially. In short, Firefox could become the mobile operating system Yahoo! Inc. (NASDAQ:YHOO) needs to stay on even footing against Google Android.
With Yahoo! Inc. (NASDAQ:YHOO)’s investment, Mozilla could also grow at a much faster rate. It would have more capital to market its products, attract developers, and build its brand. Since Microsoft Corporation (NASDAQ:MSFT) would indirectly benefit from the deal, then lower-end Nokia Firefox phones, which could complement its Windows Phones, could also become a possibility. Therefore, I wouldn’t be surprised if Mozilla’s unexpected entrance into the mobile market suddenly changes the game for the major mobile players.
The Foolish Bottom Line
It might be easy to dismiss Firefox OS as another ill-advised attempt to stake a claim to the fragmented mobile market. However, unlike other recent challengers to the mobile market, Firefox’s web browsers have a large following, which could provide it with a foundation to build its mobile ecosystem on. If Mozilla plays its cards right and makes the most of its alliance with Yahoo, then it could grow its user base very quickly. Therefore, investors should keep an eye out for Firefox OS phones, which are due out in international markets this year, and will arrive in North America by 2014.
Leo Sun owns shares of Apple Inc. (NASDAQ:AAPL). The Motley Fool recommends Apple and Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Apple, Google, and Microsoft Corporation (NASDAQ:MSFT).
The article Will Firefox OS Set the Mobile World on Fire? originally appeared on Fool.com.
Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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