The whole Google/Firefox issue is an interesting one: Google is the default search engine in Firefox because it pays to be there. The three-year deal expired in November 2011. Would they renew? Some thought no. They were wrong.

Not only has Google renewed the deal whereby it effectively bankrolls Firefox, but it’s the first time that it’s continued the deal after launching its own browser, and the first time it’s done so after Chrome is actually has as many users, according to some measures, as Firefox.

On top of that, there are reports from AllThingsD that the deal is worth $300 million a year, more than three times what they were paying under the previous arrangement. What gives?

Several theories:

We’re Partners

The official version is that Google and Firefox are buddies, after the same thing: the betterment of the web [ReadWriteWeb].

Bidding War

One is that Microsoft and possibly Yahoo! were after the deal. Makes sense: Microsoft is desperate to gain market share for bing, while Yahoo! is, well, desperate.

Eyeballs

Another theory has it that Google is basically after eyeballs, and doesn’t care how it gets them. Paying for them by getting to be the default search brings oodles of traffic. This is definitely true. I reckon that Firefox had as many as 500 million users in 2010. If 90% of those users don’t switch their default search that’s worth a lot of money to Google, and as ExtremeTech has pointed out, makes Firefox the biggest single source of traffic to Google (I calculate they paid 20 cents per user, whether or not they actually use Google.)

Antitrust

There are other theories. One is that Google is worried about antitrust issues [David Ulevitch, Twitter feed, via paris lemon] and therefore wants there to be a competitor about. This argument has some merit: expect Google Chrome/Chrome OS and Android to converge more and more, which is bound to attract the attention of regulators.

There’s no question that Google benefits any which way this goes.

• It’s clear that Microsoft has failed to dislodge Google as the search engine of choice: While its market share in the U.S. is around 15% [WinRumors, quoting comScore] globally it’s tiny: less than 4% on desktop browsers, 1% on mobile devices [both from NetMarketShare]. In other words, Google doesn’t need to worry that Internet Explorer shifting traffic to bing. While in decline IE is still the most popular browser at about 40% [StatCounter].
• Google doesn’t really care what browser people use. It would prefer they use Chrome, but as long as the browser points to Google, who cares (as Deng Xiao Ping said, who cares what colour the cat is, as long as it catches mice?). Which is why Google are just as happy to do a deal with Apple (6%) and with Opera (2%). In fact, the only browser that doesn’t have Google as its default search engine is IE. (Apple talked about cutting a deal with Microsoft last year [Daring Fireball], but it was probably a negotiating tactic. DF says he reckons the Google/Safari deal was worth $2 million a month.

Finally, then, if the new figures are true–that Google is now paying $300 million a year for the Firefox traffic–is that money well spent? Well, it’s not easy to calculate. But let’s assume that Firefox traffic continues to fall at its present rate. So in 2012 it accounts for only 21% of the market. Likely number of Internet users in 2012? Anyone’s guess, but probably about 2.4 billion? (It was 2.1 billion in March 2011, according to Internet World Stats.)

So Firefox potentially should be able to bring at least 440 million users to the table. So that’s $0.68 per user. Quite a bit more than what it’s currently shelling out–but less than what it’s paying Opera, according to my very rough calculations. Opera said it received $41 in ‘Desktop revenue’, the bulk of which it says comes from ‘search and commerce’. Assuming all of that, for the sake of argument, is money from Google for search, then using their official figure of 51 million desktop users in 2010, Opera was getting $0.80 per user from Google. (I realise that might be inflated given the ‘commerce’ component.)

That would seem to suggest that actually Google was getting users from Firefox pretty cheaply. Even if my calculations for Opera are a tad high, the new deal with Google, valuing a user at about 65 cents, doesn’t seem overly expensive. We don’t know how much Google pays Apple, but the $2 million a month means they’re the cheapest on the block, costing $0.15 per user according to back of the envelope calculations.

Indeed, these are all just back of the envelope calculations, but I reckon they offer a bit of insight into the economics of this part of the game. Remember Google made $9.72 billion in the last quarter [Google corporate pages], and paid out $383 million to “certain distribution partners and others who direct traffic to our website” in that quarter. That’s close to $1.6 billion over a year, putting the $300 million it’s reputed to be committed to paying Firefox every year in perspective.)

A good account of the economics of all this can be found at ExtremeTech.