Google to Pay $3B to Remain as Default SE on iOS Devices

The American multinational technology company, Google, is reportedly going to pay nearly $3 billion to Apple Inc. this year to remain as the default search engine on iOS devices, such as iPhones and iPads.

Apple and Google Mutual Benefits

The amount that the search giant has to shell out this year is thrice the price that it’s paying since 2014, according to a U.S-based research firm. This would prove a good profit for Apple’s services business. In fact, Google’s licensing fee will comprise about 5% of Apple’s total operations profit.

It was affirmed by Bernstein analyst, A.M. Sacconaghi Jr., and said, “Court documents indicate that Google paid Apple $1B in 2014, and we estimate that total Google payments to Apple in FY 17 may approach $3B. Given that Google payments are nearly all profit for Apple, Google alone may account for 5% of Apple’s total operating profits this year, and may account for 25% of total company OP growth over the last two years.”

This deal appears to be a huge profitable proposal for Apple. The whole sum of $3 billion directly goes to profits for Apple, with negligible operating costs. It also gives a boost to their increasing service business.

On one hand, this deal is of importance from Google’s viewpoint. Ad revenue is paramount to Google’s financial model and has been for years. The burgeoning importance of the mobile internet has now moved the ad revenue playground from desktop to mobile devices. Maintaining a hold on mobile is crucial, especially in light of ever increasing competition from the likes of Facebook.

Google’s presence on Apple’s platform warrants links to massive and varied user base that contributes greatly to their increasingly mobile first ad revenue model.

On the surface, it makes sense that Google would want to remain their default presence on Apple devices, which are some of the most popular smartphones in the world and account for significant market share.

Apple’s iOS devices contribute about 50% to Google’s mobile search revenue. Thus, both the companies are dependent on each other.

Why Google’s licensing fee has tripled?

The licensing fee is based on a percentage of the revenue that Google creates from Apple users, according to the estimates. Google’s total mobile ad revenues more than tripled from $16 billion in 2014 to $50 billion in 2017. Therefore, it stands to reason that Apple’s share would also triple from $1 billion to $3 billion.

Conclusion

While the said licensing deal is indeed beneficial for Apple and Google, that may change soon, according to estimates. Since the fee is based on a percentage of Google’s net ad revenue from Apple users, it could remain increasing as Google’s revenue share grows. At some point, the search engine company may be unwilling to pay Apple the ever growing and inflated fees.

In such situation, if Google feels confident enough of retaining a majority of their customer base even without in Apple’s platform, they may decide to break off the licensing deal with Apple. This would definitely affect Apple’s service business revenue and dent their profits.

However, such decision could also make an impact to Google. They could lose a huge install base, who may be tapped up by competitors, such as Facebook, Amazon and others.

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