I think you misunderstand the point of FOSS. It doesn't matter if government funds it (Tor) or if private interests fund it (entire GNU ecosystem). It's about freedom to distribute and modify the source as one sees fit.

Also, advertising and sponsorship don't have to be one-way streets.

For example, by funding Mozilla, Google helped to remove Microsoft's browser monopoly. Since Google's business relies on the Web, that made perfect sense. Now they have their own browser too, which makes things complicated :)

Likewise, Microsoft currently has a dominant influence in video chat, thanks to Skype. It makes sense for Telefonica to erode that dominance, since they have more business opportunities in an open, many <-> many ecosystem compared to a Skype-only one.

Too many companies base their business model on becoming a monopoly in their field ("the next Microsoft", "the next Google", "the next Facebook", "the next Twitter", etc.), rather than allowing interoperability and having to succeed on merit. When this inevitably fails, they leave behind nothing except useless, incompatible APIs. Hopefully this is different :)

My point is not that I see FOSS at risk but that they undermine the (important) idea behind Firefox: Providing a way for people to participate at the internet in an open fashion while protecting people's privacy.

In the past we could hope that Mozilla and Google had the best interest of their users in mind but now having such super-obvious product placement? This raises a lot of questions for me and will do even more so for the average user.

Take it easy. Remember Mozilla used to be sponsored by google for letting them be the default search engine? That is product placement if anything is. And you can argue it's sneaky: I didn't realize it until I'd used Firefox for a couple of years.

Actually, quite a few non-profits are sponsored by commercial interests and while sometimes this is a problem, often it is not.

Also: How would you like to fund development of Firefox?

Would you rather Mozilla pretend to be a company that doesn't need funding? I'm not understanding what a better alternative would look like.

I believe that the folks at Mozilla are capable and willing enough to not let an external company interfere with their product in any way that would harm their users. However, it is also a question of being able to communicate this to their users. Putting the logo of a company which is at least not famous for protecting its users right in front of everyone does not help getting this message across. Furthermore, I assume that Mozilla has likely not even received money but just services in-kind. Damaging the reputation of a product that is critical to the open web for a couple of servers?