- Google is paying Apple anywhere between $8 billion to $12 billion a year to be the default search option on iPhone and other products, according to new estimates.
- The Justice Department is specifically targeting such deals as part of its antitrust case against Google, and it’s seeking an injunction against Google.
- Losing the Apple deal is a “code red” scenario inside Google, a “terrifying” prospect.
That Google is paying Apple handsomely to keep its default search engine position on iPhone is no secret. We’ve heard unconfirmed details of the deal for years. Apple and Google may be fierce rivals who take plenty of hits at each other whenever they get the chance. But they’re also business partners when it’s in their best interest. The Justice Department is now going after Google, and the Google-Apple deal for iPhone search has come under fire. Current estimates put the deal between $8 billion to $12 billion a year, up from $1 billion a year in 2014. It’s an expensive fee that Google has to pay, but the company can’t afford to lose the lucrative side of the iPhone search business. But the US government is pointing at the iPhone search deal as the kind of alliances that might hurt competition.
The Justice Department estimates that nearly half of Google’s search traffic comes from Apple devices, per The New York Times. According to the DOJ, the prospect of losing the Apple deal is seen as a “code red” scenario at Google.
The Justice Department is asking for a court injunction that would prevent Google from entering deals like the one it made with Apple, which hurt competition. Among other things, the government is citing an email that a senior Apple employee sent to a Google counterpart in 2018 after Tim Cook and Sundar Pichai met to discuss how to increase revenue from search. “Our vision is that we work as if we are one company,” that Apple exec wrote.
A former Google executive told the paper that the prospect of losing Apple’s traffic was “terrifying,” confirming the government’s take on the matter. The deal is highly lucrative for Apple, too, as the deal is pure profit, according to the report.
The payment that Google makes to Apple is probably the single biggest payment that Google makes. It accounts for 14% to 21% of Apple’s annual profits.
To put that $8-12 billion into perspective, Google would need to sell 11.45 million to 17.17 million $699 Pixel 5 units to make up for that lump payment. And that’s looking at Pixel 5 revenue, not profits. Google has never sold that many flagship Pixels, and it’s hardly likely the Pixel 5 will become that successful.
Apple doesn’t have to go out of its way to make Google the default search engine for all the iPhone searches. Most people want access to Google, and many do not bother to change the default search options. Apple has offered users different options for search for years, and they can be changed at any time. On top of that, Apple kept improving the privacy tools built into its services, including new technologies that hurt Google’s bottom line by making it more difficult for advertisers to track users online.
Breaking the deal might have another dangerous implication for Google, which apparently feels that Apple would either acquire or build its own alternative search engine. Googlers apparently believe that Apple is one of the few companies that could develop a formidable alternative to Google Search. Others at Google worry that Apple might make it harder for iPhone users to get to Google Search without an agreement.