Google will pay up to $3 billion to Apple this year for the privilege of being the default Internet search engine on the company’s iOS platform, according to a market analysis that was recently conducted by one Toni Sacconaghi of investment firm Bernstein. While the two companies traditionally don’t disclose the sums Google pays on an annual basis in order for its search engine to remain the default choice on iOS, one trial from 2014 revealed that the Alphabet-owned company gave $1 billion to Apple for that benefit in 2014, and some industry analysts — Mr. Sacconaghi included — believe that number grew significantly in the next three years.
Such a turn of events would also explain why the Cupertino, California-based original equipment manufacturer has recently been increasing the attention it draws to its operations related to general software “Services” during its conference calls with analysts and investors. According to previous reports, licensing-related revenue is among the two largest contributors to the massive growth in this segment which Apple has been experiencing in recent years, which consequently led Mr. Sacconaghi to conclude that the iPhone maker is set to receive as much as $3 billion from Google this year. Provided that estimate is somewhat accurate, Google may be directly responsible for a quarter of Apple’s recent operating profit growth and five percentage points of its total operating profit in 2017.
The analyst also predicted that the Mountain View, California-based Internet giant will be paying increasingly larger sums to Apple for the same privilege in the coming years as the iPhone and iPad user base continues growing, adding how Apple may use that deal as a model for additional revenue growth in the future, offering companies the opportunity to pay for having their apps set as default iOS services. Being Google’s flagship product that accounts for the vast majority of its revenue, the company continues committing significant resources to reinforcing the already strong market position of Google Search, and its deal with Apple is just one example of these efforts. With this year marking the 10th anniversary of Apple’s smartphone lineup, the iPhone 8 series is expected to record strong performance in many parts of the world and Google will hence be required to pay a premium for remaining the default Internet search engine on such a popular product family, Mr. Sacconaghi suggested.