As Apple and Google became direct competitors following the rise of Android, industry observers wondered if (and anticipated that) someday, Apple would cease to offer Google as the iPhone’s default search engine. And while Cupertino has diversified away from Google, via Spolight Search, Siri and Bing, Google is still the dominant search tool on the iPhone.
Now, a Wall Street analyst, Toni Sacconaghi of Bernstein, speculates that Apple may collect as much as $3 billion in “services” revenue this fiscal year from Google. Extrapolating from an initial 2014 court disclosure that Apple received $1 billion from Google as traffic acquisition costs (TAC) for default search placement, the Bernstein analyst estimated a growth curve from there.
The belief is that the structure of the relationship between Google and Apple is a revenue share based on paid clicks generated by iOS devices — perhaps on top of a fee. Sacconaghi was quoted by CNBC saying, “Given that Google payments are nearly all profit for Apple, Google alone may account for 5 percent of Apple’s total operating profits this year, and may account for 25 percent of total company OP growth over the last two years.”
Google’s TAC in 2016 were $16.8 billion against total revenues of just over $90 billion. However, other “costs of revenue” on top of TAC were $18.3 billion for a total of $35.1 billion in 2016.
Sacconaghi suggests Apple (not Google) is the vulnerable party because Google could decide to abandon the deal. Google undoubtedly knows where its searches are coming from and can see how that distribution has changed over time. Users may be sufficiently trained to use Google on the iPhone that they’d either navigate there, change the default search back to Google or download the Google app.
In the US, Google has an almost 95 percent market share in mobile search, according to StatCounter.
Two years ago, Goldman Sachs estimated that about 75 percent of Google’s mobile search revenue was generated from iOS devices. Court testimony in the recent Oracle vs. Google copyright trial last year revealed that Android has generated revenue of $31 billion and $22 billion in profit over its lifetime.
Mobile search is now a major revenue driver for Google, whose executives have repeatedly pointed out that the majority of search queries now come from mobile devices worldwide.