Everything that Google creates is essentially tied to Google Search, the original Google product, and the main moneymaker. All of Google’s products are extensions of online search. Google offers plenty of useful products, many of them available to the user as free software, to steer people to Google Search rather than alternatives. Then, Google Search ad revenue then pays for everything.
The iPhone should, therefore, be one of Google’s biggest worries. Apple’s iPhone user base is expanding, with plenty of buyers being loyal to the ecosystem. But the iPhone is easily one of Google’s biggest wins in mobile. A high-end beloved product that, strangely enough, makes Google a lot of money.
So much money that Google reportedly paid Apple $18 billion in 2021 for Google Search to the default search engine on iPhone. So much money that Google wants to keep reaping the rewards while diminishing the fee it has to pay Apple.
Google Search has always been the end goal
When Google bought Android, it was afraid of Microsoft’s Windows Mobile platform, which would threaten its Google Search business. The world was moving to a smartphone-first computing experience, and Google saw that.
Initially, Google’s Android was supposed to power a BlackBerry-like experience. However, the iPhone’s arrival forced Google to rethink everything and pivot to touch-first experiences.
Again, fundamentally, it’s about funneling people to Google ads via Google Search. Android was Google’s best possible bet. A way to ensure that Google Search would be the default search engine on a mobile device without Google having to worry about the platform’s owner.
Consequentially, that’s why Android is free, and anyone can make an Android phone without dealing with licensing fees. Google wants device vendors to use its operating system. And it makes plenty of mobile apps that work well on Android for users to make the most of the handset. In turn, those apps, generate revenue via ads.
The iPhone deal is worth billions to Google
But with all that in mind, I’d dare say the iPhone is even more crucial to Google’s success. Even though Google developed its own mobile operating system. And even though Android is the dominant platform in the mobile business.
Think about it; if Google paid Apple $18 billion in 2021, it must have generated a big chunk of cash from Google Search on iPhone.
The fee detail comes from a The New York Times story looking at Google’s Search-related plans on iPhone. Two people familiar with the deal revealed the figure to the paper at a time when the US is fighting Google in courts in what might turn out to be one of the DOJ’s most important antitrust lawsuits ever.
To put things in perspective, Google made nearly $257 billion in 2021. Revenue rose to almost $280 billion last year. It’s no wonder that Google would pay incredible fees to Apple to remain the default search engine on iPhone. The deal would extend to iPad and Mac as well.
The online search activity on iPhone is just too valuable to pass up. Even if some consumers switch away from the default, many don’t. And Google cashes in on the ensuing action.
Why iPhone owners are so important
Without a deal to have Google Search the default on iPhone, Google would likely lose money from a particular type of mobile user. iPhone buyers already spend more money than Android users as the iPhone is generally more expensive.
They then purchase digital content from Apple’s stores. A recent analysis showed iPhone users spend 7.4 times more money on apps than Android users. iPhone users have always outspent Android users when it comes to apps, and that’s why the iPhone remains the preferred mobile platform for creating apps.
This is a key detail because it implies iPhone users might spend more money than Android users in general. And online search is how mobile users find products to buy. They shop online using the iPhone because they already browse and search the web on the handset. That’s why Google Search on iPhone is such a lucrative deal for Google.
Also, many iPhone owners are loyal to the platform. They’ll upgrade to another expensive iPhone in a few years rather than buying Android.
That means Google wouldn’t get access to a portion of their money without Google Search being the default search engine in Safari.
Also, recent surveys show that teens prefer the iPhone over Android. That’s a big problem for Google, but not so big if these users end up on Google Search while using the web.
How much money does Google make from iPhone?
We don’t have a revenue figure for Google Search on iPhone. But if Google spent 7% of revenue in 2021 to be the default online search option on iPhone, the iPhone-generated revenue must be significant to its bottom line.
That’s why it’s unsurprising to hear that Google is also looking to retain the default status while potentially reducing its fee to Apple. The Times points out that Google is looking at the EU Digital Markets Act (DMA) law as a way to force Apple to open up various aspects of the iPhone to third parties.
Google wants to take advantage of that by possibly steering consumers to Chrome instead of Apple’s Safari and Spotlight in the future. That’s assuming the EU would force Apple to offer a browser choice in the region:
Google executives figured that if users had to make a choice, the number of European iPhone users who selected Chrome could triple, according to documents reviewed by The Times. That would mean the company could keep more search ad revenue and pay less of it to Apple.
Interestingly, the EU forced Google to offer Android buyers in Europe a choice of browsers several years ago. So Google certainly knows how important being the default search option on a smartphone is.
Google Search on iPhone is more important than Pixel hardware
I’ll also point out that the iPhone is more important for Google than the Pixel phones it makes. Apple sells over 200 million iPhones a year. That’s the usual estimate, as Apple stopped reporting figures in 2018. It sold nearly 218 million iPhones in 2018.
iPhone revenue is estimated at nearly $192 billion for 2021. Apple’s annual net sales rose to almost $366 billion in 2021. The $18 billion Google deal represents 9.38% of those iPhone sales. Or nearly 5% of that $366 billion total.
Google is nowhere close to similar figures for the Pixel series, despite making its own hardware for nearly as long as Apple. A report in early October 2022 said Google had sold 27.6 million Pixel units since 2016. Separately, projections in 2018 said Google Pixel revenue would double to $6.92 billion in 2021.
That’s another big reason why the iPhone is such a key win for Google. Rather than worrying about manufacturing, marketing, and selling a high-end product that would drive up Google Search earnings, Google can just pay for that default position on iPhone.