Why Google will pay Apple $1b next year
Google pays Apple lots of money to use Google.com as iOS's default search engine. Photo: Reuters
Google is expected to pay Apple $US1 billion in 2014 to keep Google.com as the default search engine on iOS devices like the iPhone, iPad and iPod Touch, according to Morgan Stanley.
The financial services firm came to the figure in a report titled “The Next Google is Google” on Friday after taking a closer look at how Google makes and spends money in the mobile space.
Morgan Stanley analyst Scott Devitt bases the figure on the fact that Google and Apple - noted by many as “frenemies” - have a deal in place which sees Apple reap a certain amount of money per device sold with Google.com as the default search engine.
Mr Devitt estimates the cost Google has been paying to Apple per device has been growing year-on-year and that so too has the number of iOS devices Apple has sold. Because of this, he estimates that Apple will in 2014 be raking in about $US1 billion from Google for the privilege of keeping Google.com as iOS's default search engine ahead of rivals Bing and Yahoo.
The deal Google has with Apple is similar to one it has with the makers of the Opera and Mozilla web browsers, which both have Google.com as the default search engine. According to Morgan Stanley, the Mozilla Foundation is expected to get $US400 million in 2014 in its deal with Google.
One of the reasons Google sees value in having its search engine as the default on iOS devices is because, according to AppleInsider calculations, about 80 per cent of the search giant's smartphone-search profits come from Apple devices, with only 20 per cent coming from Google Android devices. The profits come from people clicking on Google ads on their smartphones.
Whether the Apple-Google deal continues into the future - considering Apple recently removed Google as its default mapping application on iOS and replaced it with its own, which has been ridiculed by many - remains to be seen. But given $US1 billion is at stake, there's a fair chance Apple may have an incentive to keep it in place, given it doesn't yet own its own search engine.
This reporter is on Facebook: /bengrubb