Google pays $3 billion to Apple every year for being the default search engine
Apple and Google could be one of the biggest friends and enemies in tech. While they both compete like there’s no tomorrow, they also partner on some very specific deals. For example, Google is reportedly paying a lot of money to Apple to remain the default search engine on iOS.
In a report published by the CNBC, according to a Bernstein analyst, Google could pay as much as $3 billion a year just to remain the default option in Safari.
Business Insider also stated the Bernstein report and shared the thinking behind this number. Bernstein analyst Toni Sacconaghi starts from a previous court document from 2014 that stated that Google had to pay $1 billion every year to remain the default search engine on iOS back in 2014.
However, the mobile traffic and as well as iPhone sales have been increasing steadily since then and if we look at Apple’s services revenue, the licensing revenue in particular, and as well as Google’s traffic acquisition costs, that number could be around $3 billion right now.
This means that Google is still highly dependent from Apple. The vast majority of Google’s revenue comes from ads on search result pages. And Apple controls roughly 18 percent of the smartphone market.
With more and more users updating their devices to the latest version of iOS in just a few months, it doesn’t take long to change the default setting on hundreds of millions of iPhones. Google has no choice but to spend a ton of money to acquire this traffic.
A few years ago, the iPhone shipped with a built-in YouTube app and Google Maps.
So when Apple realized that Google was on the way to become a serious competitor with Android, the company removed the YouTube app from iOS and worked on Apple Maps. Apple could probably not get as much money from Microsoft Bing, Yahoo Search or DuckDuckGo, but Apple doesn’t really need it anyway as it brings more than $45 billion in revenue per quarter now. It’s all about hurting Google’s bottom line.
According to a statement from John Gruber, Apple is in a strong position now in this negotiation. While it’s true that DuckDuckGo and Bing have gotten better over the years, it still lags behind when you’re using those search engines in non-English languages.
Apple and Google have kept innovating and competing massively on the smartphone front. But they also partner on other aspects and even pay each other. Business schools will turn this situation into a great case study.
