The Mozilla / Firefox IPO*

How much is the entity that manages the Microsoft IE-killing browser Firefox worth, and when will it go public? Answers: 1) A lot, and 2) Probably this year or next.

Background:

In the past few years, Mozilla's open-source Firefox browser has done what most people would have considered impossible, which is chip away at Microsoft's choke-hold on the browser market. Considering Microsoft's advantages in this market--Internet Explorer comes pre-installed on nearly every PC--this is nothing short of amazing.

Estimates of Firefox's current penetration vary, but most put the browser's share at more than 15% (with 100 million+ downloads). On SAI, which obviously has tech-savvy readers, Firefox accounts for a full 42.3% of visits, only half a point less than IE's 42.7% (Apple's Safari accounts for most of the rest, with 13%). This shows the extent of Firefox's encroachment on what was once Microsoft's turf, as well as the amount of market growth opportunity left.

So how much is Firefox/Mozilla worth?

Any analysis has to start with the fact that, so far, Mozilla hasn't made much of an effort to build a business. The company's main revenue stream is simply per-browser carriage revenue for that little Google search box you see in the upper right corner of your browser tool bar--about $1 per download, according to some estimates. Even without slamming the accelerator to the floor, there's a lot more where that came from (advertising on the default landing page, for example).

Current Estimated Financial Performance

Still, according to the NYT in May, 2007, the for-profit company the foundation set up to handle Firefox has generated more than $100 million in revenue over the past few years: $6 million in 2004, $52 million in 2005, and so on. A reasonable continuation of that ramp would suggest that Mozilla Corp. might now have a run-rate of at least $100 million to $200 million per year. And, again, that's before it has really started trying to build a business.

What about costs?  The same NYT article put Mozilla's employee count at about 90, with more hiring planned.  So let's say there are now 125 full-time employees at a fully loaded cost of $150,000 per employee ($19 million a year), plus another, say, $30 million a year in facilities, services, equipment, and other costs.

Bottom line:

That adds up to costs of about $50 million a year, leaving Mozilla with annual profit of $50 million-$150 million on a $100-$200 million run-rate. Yes, if/when the company decided to go public, costs would rise and profits would drop  (Sarbanes Oxley alone would burn $5 million), but revenue would rise, too. So suffice it say that this is already a pretty nice business.

Valuation:

How much is the current business worth? Let's tax that profit range and apply multiples: $50-$150 million pre-tax gets you about $35 million - $100 million after tax. A business this exciting would probably trade for at least 30X-50X current profits, which would put you at $1.5 billion to $4 billion using the mid-point of the multiple range. Based on the valuations of other companies--$200 billion for Google, $7.5 billion for Facebook (discount that crazy Microsoft investment by at least 50% to get to fair-market value)--this seems very conservative, and it's still a boatload of money.

When Will Firefox/Mozilla Go Public?

Mozilla's earnest Mitchell Baker and friends will, of course, publicly say "NEVER!"  But let's be serious. Why wouldn't the Mozilla Foundation, which presumably exists to do good for the world, want to be the proud possessor of several billion dollars worth of public company stock? The Google Foundation, also a good-doing 501c3, certainly hasn't done badly with its own stash of GOOG. And, over time, like any smart foundation, Mozilla and Google will likely want diversify their holdings so they can continue to do good for decades.

Also, as well as Firefox is doing as a part-time love project, it could do even better with some major marketing, deal-making, and distribution power behind it. Every company in the world (save Microsoft) should want a Microsoft (and Google) competitor to succeed. So every company should want to at least consider a partnership with Firefox.

And what about those thousands of open-source coders who have built Firefox? What's in it for them? Won't they scream bloody murder?

Some of them will, yes. And some of them will storm off and found other "pure" open-source projects and hang out with communist billionaire Craig Newmark and grouse about how the world's going to the dogs.

But others--dare we say most?--will continue to contribute and carry on the Firefox anti-IE fight, especially after Mozilla distributes pre-IPO shares to the most prolific contributors (vesting over four years, of course, with more options granted every year, so as to ensure ongoing loyalty).

In Conclusion:

Go ahead and call us retro: We still think Mozilla should buy the Netscape brand and site from Time Warner and rename the company Netscape (and the browser Netscape Firefox). But even if the company sticks with "Mozilla," we're looking forward to the IPO.

*UPDATE: Mozilla responds--We are NOT going public--and round two of the Great Mozilla/Firefox IPO Debate begins.

See Also: What AOL (and Mozilla) Should Do With Netscape