Analyst: Google pays Apple $1B a year to remain iOS search default


Google (NASDAQ:GOOG) pays Apple (NASDAQ:AAPL) roughly $1 billion per year to remain the default search option on devices like the iPhone and iPad, according to analyst estimates.

A new report from Morgan Stanley analyst Scott Devitt states that Google pays Apple about $250 million every quarter to remain its iOS search partner, chalking up the $1 billion annual charge to traffic acquisition costs. Google's mobile business hinges on iOS traffic: Based on figures provided in its patent and copyright infringement battle with Oracle as well as remarks from Google CEO Larry Page, insiders believe iOS generates about 80 percent of Google's mobile advertising revenues.

Although some analysts maintain Google and Apple agreed to a mobile search revenue sharing deal, Devitt believes Google pays Apple a per-device fee, simplifying accounting and giving Apple upfront payments. A per-device fee also would hedge against users who search via the Web as opposed to the default iOS search box. As iOS device penetration grows, Google's traffic acquisition costs should continue to balloon in the years to come, although Devitt anticipates accelerating profits from other Google services like YouTube will offset the increase.

Apple reported profits of $13.1 billion during the most recent quarter: While the iOS search deal is a relative drop in the bucket, it is money generated with almost no effort from Apple staffers. Google reported fourth-quarter profits of $2.89 billion.

The Google/Apple search partnership is expected to continue despite growing animosity between the two firms. Last year, Apple dumped Google Maps from iOS in favor of its own Apple Maps platform, also eliminating native support for YouTube. Google has since released standalone Google Maps and YouTube apps available for download from Apple's App Store.

Devitt estimates that Google controls 95 percent of the worldwide mobile search market. He adds that in addition to the Apple agreement, Google pays $300 million per year to Mozilla to remain the default search provider for its Firefox browser and its forthcoming Firefox OS mobile operating system.

For more:
- read this Business Insider article
- read this Apple Insider article

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