Google is slated to pay $3 billion to Apple to remain the default search engine for its mobile operating system this year, according to the estimates of financial analysts at Bernstein. That’s up from the $1 billion fee that the iPhone maker charged in 2014, as court documents revealed last year.
“Court documents indicate that Google paid Apple $1B in 2014, and we estimate that total Google payments to Apple in FY 17 may approach $3B,” Bernstein analyst A.M. Sacconaghi Jr. said, according to CNBC. “Given that Google payments are nearly all profit for Apple, Google alone may account for 5% of Apple’s total operating profits this year, and may account for 25% of total company OP growth over the last two years.”
The news is also a clear victory for Cupertino, given that the $3 billion payment is “nearly all profit for Apple”. Its burgeoning services business alone is estimated to have grown to the size of a Fortune 500 company in recent years.
On top of the payment, it’s possible that Google will share a portion of the advertising revenue it derives from Safari mobile with Apple, as it did in 2014, though this has not been confirmed. While Google is paying its rival a hefty sum, it makes sense in view of the fact that around half of Google’s mobile search revenue comes from iOS devices.
Remaining the default search engine on hundreds of millions Apple devices is important and lucrative, as evidenced in the case of the rivalry between Apple Maps and Google Maps. When Apple decided to switch from the lauded Google Maps service to its own in-house map app in 2012, the decision was derided, along with Apple Maps, which happened to be riddled with bugs. Over time, Apple engineers worked to fix the glitches until the app became serviceable enough for its users not to miss Google’s superior alternative. In 2015, Apple proudly reported that its mapping app was being used three times more often on its iPhones and iPads than Google Maps.
It’s reasonable to think that Google search is dominant and superior enough that iOS users will turn to it even if it isn’t the default option, as Sacconaghi notes. Nevertheless, it would be risky for Google to abandon the licensing deal given how much it stands to lose if Apple users decide to stick with a new default search engine.