You won’t believe how much Google pays Apple to be the search engine on yours iPhone

You won't believe how much Google pays Apple to be the search engine on yours iPhone

Tech Highlights:

  • After all, there are over a billion iPhones and iPads in active use, and most users don’t put a lot of thought into what search engine they’re using when they simply open up Safari and type something in, so it’s pretty easy to see how being the default search engine is easily worth many billions of dollars for a company whose entire business is based on the kind of data that comes from search queries. Recent statistics suggest that Google currently handles over 60,000 search queries every second, or over 5 billion search requests per day. That’s a lot of data, and it’s safe to say that most of it comes to Google by default.

  • While Apple’s services now account for a sizable portion of the company’s quarterly income, second only to iPhone sales, you may be surprised to learn that the majority of these revenues come from one of Apple’s main competitors. Ironically, Google is Apple’s biggest single customer, paying billions of dollars per year for the privilege of being the default search engine on the iPhone and iPad, and a new analyst report suggests that the rental fees for this prominent piece of digital real estate could reach $15 billion in 2021.

So, needless to say, this is also a pretty competitive landscape. Google may be the biggest search engine in town, but it’s far from the only one — it has to compete with other juggernauts like Microsoft that would surely like to get a leg up on the competition by being front-and-centre on billions of Apple devices. In an investor note shared by Ped30, it looks like it’s this fear of competition that’s going to force Google to up the ante, offering Apple nearly $15 billion this year to make sure that it stays on top.

According to Sacconaghi, if Google does, in fact, pay the predicted $15 billion for this fiscal year, that would work out to 9% of Apple’s gross profits. This means that almost 1/10th of Apple’s profits are coming from a deal with one of its biggest tech rivals. To be fair, however, these kinds of deals cut both ways. As we saw a few weeks ago, Apple is also paying Google around $300 million per year to rent space for iCloud data on its servers. Still, $300 million is a tiny fraction of $15 billion.

According to Bernstein analyst Toni Sacconaghi, Google’s estimated payments to Apple last year were around $10 billion — higher than the $8 billion they originally estimated, but right in the middle of the range in which analysts had collectively pegged it. This updated estimate is based on disclosures in Apple’s public SEC filings and a “bottom-up analysis of Google’s TAC (traffic acquisition costs).” Sacconaghi adds that these numbers could go as high as $20 billion in 2022, and while he acknowledges the possibility of regulatory antitrust concerns that could declare the search deal between Apple and Google to be illegal, he suggests that’s “likely years away.”

The size of the Google search deal puts Apple’s Services revenue in a very different light from what most people realize. When most users think of Apple’s Services, they’re thinking of consumer-facing services like Apple Music, Apple TV+, Apple Arcade, Apple Fitness+, and so forth. However, these outward services actually make up a tiny fraction of the $17.5 billion that Apple posted in Services revenue last quarter.

Apple Arcade: Apple hasn’t said much about how many subscribers it has for its subscription gaming service, and by itself Apple Arcade likely isn’t contributing significantly to Apple’s bottom line. Apple News+: By all reports, we imagine that the revenue from Apple’s subscription news service is probably little more than a rounding error on Apple’s income statements. It’s had a very hard time gaining traction, and may not even have more than a couple of million subscribers.

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