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The iPhone X’s success will cost Google billions

Published Oct 27th, 2017 11:45PM EDT
Google vs. Apple iPhone
Image: PhoneBuff

You can finally preorder the iPhone X, the most expensive smartphone in the world, but you may have a hard time getting one in time for Christmas. Apple must love the fact that iPhone X sold out within minutes around the world.

Some of its biggest rivals also must appreciate the iPhone’s success. One of them is Samsung, tasked with manufacturing the iPhone X display, which is the most expensive component of the new handset. The other party that should be thrilled to see people buying the iPhone is Google.

Just like Samsung, Google is a fierce Apple competitor. But unlike Samsung, it has a serious reason to hate loving the iPhone.

Google has to pay billions of dollars for the privilege of being the default search engine on Apple’s devices. The latest estimates said the iPhone search deal is worth $3 billion to Apple, and Google is ready to pay that tax.

In fact, Google just confirmed that traffic acquisition costs (TAC) will increase because of “changes in partner agreements,” and Apple is believed to be the main such partner.

There’s no new estimate of the Apple-Google deal, and Google never mentioned Apple in its third quarter earnings report or remarks. But Business Insider says that one theory says the rising TAC is a result of a new agreement with Apple.

“TAC growth continues to outpace accelerating Google sites growth, due in part to recent changes in partner agreements (presumably Apple),” Baird analyst Colin Sebastian said in a note to investors.

Macquarie analyst Ben Schachter said that while he found no direct tie to Apple, the increase is “clearly very likely from mobile and Apple overall.” He thinks “It is not an existential threat, but it is a cost that will continue to rise.”

Google’s TAC hit 23% of Google’s total ad revenue in the third quarter of the year, up from 21% during the same period last year. Google reported $28 billion in revenue for Q3 2017. Almost a quarter of that accounts for TAC.

A Bloomberg Businessweek report not too long ago that Google investors might be worried about the TAC, which is why Google is looking to make more hardware of its own. The Pixel 2 series, however, just proved that Google is not quite ready to make an iPhone rival.

Ironically, Apple seems to be making more and more money from a company whose business model is to sell user data to advertisers, something that Apple criticized for a number of years now.

Chris Smith Senior Writer

Chris Smith has been covering consumer electronics ever since the iPhone revolutionized the industry in 2008. When he’s not writing about the most recent tech news for BGR, he brings his entertainment expertise to Marvel’s Cinematic Universe and other blockbuster franchises.

Outside of work, you’ll catch him streaming almost every new movie and TV show release as soon as it's available.

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