Google Pays Apple Billions For Default Search Engine Status

Reports indicate that Apple is paid a significant amount of money by Alphabet to ensure that the search engine on iPads and iPhones remains Google by default. According to Toni Sacconaghi, an analyst at Bernstein, Apple could be receiving up to $3 billion every year from this deal.

Going by the estimated figure, revenues from Google may comprise about 5% of the total operating profit Apple generated this year as well as 25% of the growth in operating profit that the iPhone maker has experienced recently. The most recent year in which a payment from Google to Apple can be confirmed was in 2014 when Apple received $1 billion from the search giant.

Apple ecosystem

This was revealed through court documents and it was a payment by Google to Apple from the money the search giant earned from users of Apple’s mobile devices. Though it is not clear what the terms of the deal are, there have been media reports indicating that 34% is the agreed-upon rate.

In the recent past Apple’s Services category has been drawing increased investor scrutiny as it is a growing part of the business. This year it is estimated that this line of business could generate close to 13% of the total revenues. But when executives from Apple discuss Services, their focus is mostly on the fees the Cupertino, California-based tech giant gets after apps are sold on its online store or the money made via subscriptions such as Apple Music.

Licensing revenue

From the analysis conducted by Bernstein however licensing revenue comes second in contributing to the growth in the Services category. This is what has led Bernstein to conclude that Google’s payments to Apple will amount closer to three billion this year.

“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,” wrote Bernstein in a client note.

According to Bernstein the money Apple is paid by Google is in all likelihood all profit, an indication of how important the iOS ecosystem is. Unless terms of the deal change the amount of money Apple collects from Google is set to keep on increasing year after year as the iOS userbase keeps on growing. Analysts also see a new opportunity for Apple where it could charge other apps with a view to making them the default applications. This could include such apps as Amazon, Uber and Netflix.

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