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I think Adobe pretty much forced their hand when they kicked Flash to the curb, and there was no really viable open source alternative. I don't think there was any real choice left for Mozilla, especially in light of the every growing focus on mobile by pretty much everyone. Without Flash, which Firefox used to support video playback in the absence of H264 support, Mozilla has a short list of options. It remains to be seen if this will have any impact on the free distribution of Firefox (Mozilla says it will not), but they will have to start paying a licensing fee for H.264. The important question about all of this, in my opinion, is whether this is indicative of a move away from open source in general. Hopefully not, but sometimes there is no other realistic option.
Mozilla felt they had to embrace h264 to remain competitive in the mobile space. It was a decision they tried to hold off on for as long as possible - it truly does go against everything Mozilla stands for - but they thought better to stay relevant. I was upset at the news as well.