One word: patents. This is why I believe schools should require more rigorous legal training of engineering and computer science graduates. I've met too many engineers (one would be too many) who, when confronted with potential IP issues, say "who cares anyway?" Since Mozilla wants to distribute a free product to millions of users in the US, they have to care about patents, and that prevents them from including H.264. However, contrary to H.264, WebM is explicitly designed to avoid patents that aren't owned by Google/On2, so Microsoft could implement WebM with significantly less risk than Mozilla could implement H.264.