Analyst Scott Devitt of Morgan Stanley has estimated that Google pays Apple up to a billion dollars each year to be the default search engine choice on iOS. That’s $1 billion in pure profit.
The two companies apparently have a per-device deal in place rather than a revenue sharing deal, he wrote in a report titled “The Next Google Is Google.” The fee-based co-operation was agreed on in order to simplify accounting and it lets Apple collect upfront payments.
By contrast, Devitt estimates that Google pays around $300 million annually to Mozilla to be the default search engine for Firefox.
While one billion in traffic acquisition costs isn’t much relative to Apple’s $13 billion in holiday quarter profit, it ain’t spare change either. Moreover, it just shows that Google is very much keen on having iOS users search the web using Google search…
BusinessInsider relays the analyst’s note:
In the past, some analysts have estimated that Apple has a revenue sharing deal with Google on iOS search. So that for every one dollar of search advertising collected on an iOS gadget, Apple gets 75 cents.
Devitt thinks Apple wouldn’t do a revenue sharing deal with Google because it’s too messy. He thinks Apple would do a fee per device because it’s easier for accounting and it gives Apple upfront payments. It’s also a hedge against users going to Google.com and searching from there instead of the default search box on iOS.
The report echoes findings by Macquarie analyst Ben Schachter who in March 2012 estimated that Google pays Apple $1 billion in the iOS search deal.
As much as Apple would gladly jettison Google for Bing or Yahoo, it’s unwilling to compromise iOS users’ search experience by replacing the leading search engine with inferior services as a stock choice.
The money likely doesn’t matter much.
For the companies like Google and Apple, a billion dollars is a drop in the water, really.
In exchange for the sum, Google gets to collect data on what iOS users are searching for and use this information to better profile users and sell them to advertisers at a premium. It’s believed Google has raked in as much as 80 percent of its mobile ad revenue from iOS devices between 2008 and 2011. The company controls an estimated 95 percent of the mobile search market.
Here’s Google’s new Nexus 4 ad aired during the Grammys, highlighting Siri-like Google Now search.
This data collection which happens behind the scenes was reportedly one of the reasons Apple had decided to replace Google Maps with its own service. And by removing YouTube from iOS 6, Apple has shortchanged Google for video-related data though the Internet giant quickly countered Apple’s moves by releasing the native YouTube and Google Maps apps on the App Store.