Google pays Apple nearly $20 bn a year to be on your iPhone, but this fantastic deal is in danger
Apple earns a whopping 14-16 percent of its annual profits from Google’s payment to stay the default search engine on iPhone 12, iPhone 13, iPhone 14, iPhone 15 and others. This massive amount is at risk if the US antitrust case rules against Google.
Amid the sensational US Department of Justice (DOJ) antitrust case against Google, where the legality of the company's deal with Apple is under contention, through which it has become the default search engine on iPhones, a new report has made a major revelation on just how much is being paid. The antitrust case intends to find whether anti-competition practices were used by Google to keep itself as the default search engine on iPhone 12, iPhone 13, iPhone 14, iPhone 15 and other models. Recently Microsoft CEO Satya Nadella testified in the case and called it a ‘problematic' behavior of tech companies to strike exclusive deals with platforms to keep competition away.
Bernstein, a firm that advises investors on where to place their bets, has published a report where it has reiterated its earlier estimates on how much Google is paying Apple. “We believe there is a possibility that federal courts rule against Google and force it to terminate its search deal with Apple. We estimate that the ISA is worth $ 18B - 20B in annual payments from Google to Apple, accounting for 14-16 percent of Apple's annual operating profits,” said the report, as quoted by The Register.
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Why Google is paying Apple
If you have used an iPhone, you have seen the combined search and URL bar where you normally post your search queries and quickly add links. You must have noticed that whenever a search query has been made, it opens Google's results page. This can be changed manually if you particularly prefer Bing or DuckDuckGo, but if not, ‘by default' it stays fixed at Google Search. And people generally do not change the default search engine.
As Nadella said in his testimony, “Defaults are the only thing that matters in terms of changing user behavior”. This is a privileged position for Google as it controls the internet traffic from a huge number of iPhone users. On top of that, it is already the default search engine on Android smartphones, as Google owns Android. This is what allows Google to show relevant ads to users alongside search results, and the tech giant earns a massive amount of money from advertisers.
As per reports, this is the reason Google entered the exclusive deal with Apple where it pays the company a big sum annually that comprises 14-16 percent of Apple's annual profits.
But with the DOJ antitrust case ongoing, Apple stands to lose a lot.
Apple could lose as much as $20 Bn if Google loses the case
If Google is banned from paying Apple to remain the default search engine, a big impact will be seen on Apple's profit numbers as well. A level-playing field will affect its revenue, which means both companies are in a lose-lose situation. However, the Bernstein report highlights that this is not the case.
"Importantly, Google is on trial, not Apple, and Apple could (in theory) partner with another search engine to be the default (and/or retain the agreement with Google outside the US)," The Register quoted the report as saying. "One more likely scenario is that Apple offers a choice screen. We note that Apple controls access to its installed base, which generates ~$60B + in advertising revenues, and accordingly, we believe that Apple would continue to command a commission (in the 25-30 percent range) for providing access to those search advertising revenues. Moreover, introduction of a choice screen could offer Apple the opportunity to potentially launch its own search engine as an option – something it could likely not do today without raising the eyebrows of regulators”.
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