Google needs to pay Apple a small fortune to remain the default search engine on iOS

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Apple and Google could be the biggest frenemies in tech. While they both compete like there’s no tomorrow, they also partner on some very specific deals. For instance, Google is paying a ton of money to remain the default search engine on iOS.

As CNBC first reported, 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 obtained that 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.

But mobile traffic as well as iPhone sales have been growing steadily since then. If you look at Apple’s services revenue, and in particular licensing revenue, as well as Google’s traffic acquisition costs, that number could be around $3 billion right now.

It shows 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.

As most users update 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. When Apple realized that Google was becoming a serious competitor with Android, the company removed the YouTube app from iOS and worked on Apple Maps. Apple isn’t afraid of saying no to Google when it comes to iOS features.

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.

As John Gruber noted, Apple is in a strong position 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.

This incongruous situation is a great example of asynchronous competition. Apple and Google keep innovating and competing as hard as they can 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.