Google's Move to Restrict Browser Extensions Sends Jitters Through Israel's Download Valley

Local developers of toolbars and other extensions for Chrome fear the change will ultimately hurt their revenues.

Starting in January, Google will be blocking users of Chrome from downloading extensions for the popular web browser from anywhere but its own Chrome Web Store, a move that is sending jitters down Israel’s “Download Valley,” the collection of companies that develop and distribute free software online.

On its Chromium blog, Google is encouraging developers whose extensions are not currently available in the Chrome store to “migrate them as soon as possible” for a flat fee of $5. The company says the change is aimed at protecting users from inadvertently installing malicious extensions. Chrome is installed in about 45% of the world’s personal computers.

On Tuesday, Noam Lanir, the controlling shareholder of the online translation company Babylon, said that Google’s tough new policy on browser extensions threatens the entire Israeli toolbar industry, which is popularly known as Download Valley.

Lanir compared Babylon’s losing its contract with the world’s largest search-engine company to Prime Minister Benjamin Netanyahu’s campaign to block an impending nuclear accord between the United States and other world powers and Iran, portraying both as cases of being let down by a partner.

“The Americans, our allies, changed their tune,” Lanir told a capital markets conference sponsored by the Calcalist financial daily. “Mr. Prime Minister, I completely identify with your pain and sense of hurt and disappointment when an ally turned their back on you and went on a date with the enemy ... Both of us misread the map. You gambled on Republican aggressiveness during a liberal president’s term. We acted with Israeli chutzpah.”

Besides Babylon, the local companies likely to be hurt by the change are Revizer, Superfish and CrossReader. The first two recently raised considerable capital from venture capital funds. IronSource and Somoto will also be affected, although not their core activities.

“The industry is under a lot of pressure,” said a senior Download Valley source. “Toolbar companies like Babylon and Perion Network will be hurt the most.”

Earlier this month Google told Babylon it was breaking off their contractual agreement, saying users of its Chrome application found the Babylon toolbar disruptive and difficult to remove. Although it issued a warning to Babylon, the U.S. web giant Yahoo said it would keep its contract after the company agreed to make changes in how it operated and recruited toolbar users.

Under its agreement with Google, Babylon featured a Google search bar in the toolbar it provided users for free. More than 40% of Babylon’s revenues, or $45 million, came from the royalties Google paid for every search in the second quarter of this year, although the figure fell in the third quarter as Babylon diversified its revenue sources. A week ago, Babylon said it would lay off one third of its staff after the loss of the Google contract.

“All IronSource products are already available in the Chrome store,” said a source close to IronSource. “Google is distinguishing between those who work with it via a contract and those who don’t. Since anyone can develop an app, Google has an interest in regulating the matter. “

The source said that toolbars account for less than 5% of IronSource’s profits and that none of the company’s new products are toolbars at all. IronSource indefinitely suspended merger talks it was holding with Babylon after the latter lost its Google contract.

Nevertheless, even the Israeli companies that do not distribute browser extensions still buy and sell the movement of web users from third parties, which are often developers of browser extensions. Reducing the supply of user traffic that can be purchased from developers will reduce the traffic that companies can offer to the major search engines, cutting into a significant revenue stream.

The big question, says one industry source, is whether Google and Yahoo will continue to use third-party vendors to draw in search engine users. “Google and Yahoo aren’t prepared to give up market share, which is why Yahoo didn’t cut its ties to Babylon,” he said.

Bloomberg