Google To Spend $15B To Remain Default Search Engine On iOS

It’s no secret that Google pays Apple a hefty sum yearly to ensure that it remains the default search engine on iPhone, iPad, and Mac. In a new investor note by a financial advisor and analyst, Bernstein’s Toni Sacconaghi, the analyst claims Google’s payment to Apple to maintain the status quo could reach as much as $15 billion in 2021, up from $10 billion last year. According to reports it’s estimated that Google’s payments to Apple could continue increasing on-year and hitting as much as $18-20 billion in 2022. The Bernstein analyst bases his numbers on Apple’s public filings as well as a bottom-up analysis of Google’s traffic acquisition costs.

The Google-Apple agreement with the search and advertising markets has been in place for over a decade. Bernstein analysts believe the agreement could face a regulatory risk especially Google’s search engine dominance coming under increasing scrutiny in recent years. In addition, Yahoo and Microsoft have both been interested in inking a deal with Apple to overthrow Google as the default search engine on iOS devices, and the analysts suggest Google’s huge payments to Apple are made to ensure Microsoft doesn’t outbid it or takes away its spot. Recent statistics suggest that Google currently handles over 60,000 search queries every second or over 5 billion search requests per day. That’s a lot of data, and it’s safe to say that most of it come to Google by default.

Two potential risks to Google’s payments to Apple are, the first which is regulatory risk, which we believe is real, but likely years away; we see a potential 4-5% impact to Apple’s gross profits from an adverse ruling. The second risk is if Google chooses to stop paying Apple to be the default search engine altogether, or looks to renegotiate terms and pay less. According to prior research, it is worthy of note that Google is likely “paying to ensure Microsoft doesn’t outbid it.” That said, payments will continue to grow and most likely approaching $18 – $20B by 2022, it is not unlikely that Google may revisit its strategy.

Last year, the U.S. Justice Department filed an antitrust lawsuit against Google, claiming the tech company has used anticompetitive and exclusionary practices in the search and advertising markets to maintain an unlawful monopoly. One of the main complaints against Google last year was its deal with Apple that allows Google to be the default search engine on Apple’s Safari browser and other search tools. Last year, Sacconaghi argued Apple should purchase a search engine outright to put pressure on Google. Sacconaghi’s reasoning was that Apple doesn’t have many alternatives to Google, with its only leverage being a swap to Bing. However, the analyst warned that such a move could trigger regulatory oversight that could ultimately block the acquisition and putting Apple in a worse position than before.

Speculation mounted last year was that Apple was planning to launch its own search engine after increased activity was noticed from its web crawler, but the uptick was later put down to Apple’s efforts to improve Siri and Spotlight search results, and the rumour has so far come to nothing. The payment from Google to Apple accounts for a significant amount of Apple’s ever-important Services segment. Apple has put an emphasis on Services over the years to show investors it has other ways to grow revenue and profit beyond hardware sales.