Apple and Google maintain a well-known financial agreement that cements Google’s position as the default search engine on Apple’s iOS devices. The specific monetary figures involved have remained undisclosed by both companies. In 2021, financial advisor Bernstein estimated that Google’s annual payment to Apple for this arrangement was approximately $10 billion. However, a recent investor note from Bernstein now asserts that Google’s payment to Apple falls within the range of $18 billion to $20 billion.
Everything about Google’s Annual Payment to Apple
The report by Bernstein, initially reported by The Register, delves into the potential implications for Apple amid the ongoing antitrust trial against Google by the US government. The US Department of Justice is utilizing Google’s Information Services Agreement (ISA) with Apple as evidence to support allegations of Google’s monopoly in the search engine market.
Bernstein’s perspective is that “There is a possibility that federal courts may rule against Google, compelling the termination of its search deal with Apple. We estimate that the ISA is valued at $18B-20B in annual payments from Google to Apple, constituting 14-16 percent of Apple’s yearly operating profits.”
The calculation by Bernstein is based on Google disbursing 22 percent of its total ad revenue as traffic acquisition costs (TAC), with an estimate that Apple receives approximately 40 percent of this amount. The Department of Justice previously suggested that Apple gains roughly $10 billion from its association with Google, but this information is drawn from external sources.
The report acknowledges that Google is the primary entity on trial, not Apple. In theory, Apple has the option to partner with an alternative search engine as the default or sustain the agreement with Google outside the United States. Another conceivable scenario involves Apple offering users a choice screen to select their preferred search engine. This report emphasizes that Apple has control over access to its installed base, generating more than $60 billion in advertising revenues. Consequently, Apple could command a commission in the range of 25-30 percent for providing access to these search advertising revenues.
Furthermore, introducing a choice screen could potentially enable Apple to launch its own search engine as an option, a move that could raise regulatory concerns if pursued without such a mechanism in place.
In a related development, it came to light during the trial that Microsoft had contemplated selling its Bing search engine to Apple. If this acquisition had occurred, Bing might have replaced Google as the default search engine on Apple devices. Experts contend that there exists a possibility for Google to lose the case, jeopardizing Apple’s long-standing and lucrative agreement. However, a final ruling is not anticipated until next year, with the legal proceedings likely extended by the appeals process.
