Google has its hands in a lot of different services, but search (which then leads to advertising) is really their bread and butter. When people use Google to search for things, Google is better able to serve advertising to those people, which makes Google all kinds of money. Being the default iPhone search engine is apparently worth quite a lot to Google. They may pay as much as $3 billion USD for the top spot for search on iOS this year alone.
Bernstein analyst Toni Sacconaghi came up with the $3 billion figure after digging through some available data and extrapolating some additional known quantities. Business Insider provides detail on how Sacconaghi and the rest of the team at Bernstein came to this number:
“Our estimate is triangulated in a number of ways: (1) third party market research suggests that Google’s total mobile revenues have increased from $16B to $50B (i.e., have tripled) from CY14 to CY17 (Exhibit 3); accordingly, payments to Apple likely have increased commensurately (to $3B) since then; (2) In the last two quarters, Apple’s Services revenues have increased YoY by $2.4B, with the App Store being the biggest contributor (which we model has increased $1.35B YoY), and Licensing revenues to be up by the second largest amount, which could be up $500M or more – suggesting that total licensing in the last two quarters is increasing at a rate of $1B per year this year; and (3) Google’s distribution Traffic Acquisition Costs (TAC – the amount it pays OEMs and carriers for search placement) is 2.2x what it was in 1H 14 (Exhibit 4), again suggesting that if Apple held share, payments from Google to Apple might be up a similar amount to $2.2B (or more assuming Apple gained share). We note that press reports have indicated that the revenue share between Apple and Google was at one point 34%, which if true and still the case today, would point to a much higher than $3B in payments from Google to Apple today.”
Yeah, that’s a big wall of text that throws out a whole lot of big dollar amounts. Google is obviously loaded, but it’s interesting to see how the rich are helping the rich get richer. Google is obviously receiving benefit from the deal or else they’d likely have some issue simply throwing that kind of money at Apple every year.
Business Insider also suggests how Apple may be learning to monetize its other iOS services in a similar manner. Would Lyft pay to be the official ride sharing service of iOS? Would Facebook try to muscle out Twitter or Snapchat for prime position in the social media slot? It’s easy to see Apple using the leverage they’ve already gained by way of Google to maybe line their pockets just a little bit more.
Last Updated on August 14, 2017.