Apple’s Google search payment – the billions of dollars Google pays to be the default search engine on Apple devices – is likely safe for years to come, say analysts. The controversial payment is thought to contribute as much as 3% of Apple’s pretax profit, but is potentially under threat from antitrust action.
Neither company has ever disclosed the sum, which Apple lumps into its Services category without splitting it out, but one of the more recent estimates suggested that it would amount to between $18B and $20B this year …
Apple’s Google search payment
When you do a search in the combined URL/search bar on any Apple device, the default search engine will be used. Unless you have manually changed it, that search engine is Google.
The traffic from searches on iPhones, iPads, and Macs is worth a huge sum of money to Google, as that’s what it allows it to display relevant ads alongside search results. To keep that traffic and money flowing, Google pays Apple an undisclosed sum each year for maintaining its default search engine status.
We got a glimpse into this arrangement way back in 2014, when a court case revealed the sum to be $1B, which at the time comprised a percentage of the revenue generated – apparently 34%. Since then, the sum is believed to have steadily increased. In 2017, it was estimated at $3B; in 2018, $9B; in 2020, $10B; and it is projected to be worth $18-$20B this year.
The payments are controversial because Apple uses privacy as a key selling point for its products, yet has an extremely lucrative deal with a search engine whose business model is based on user data.
The threats to that payment
Apple faces two threats to that revenue stream. First, accusations of hypocrisy on the privacy issue. This was a point last year put to the company’s senior director of global privacy Jane Horvath.
Horvath was asked about why Apple doesn’t make DuckDuckGo the default search engine on iOS, rather than Google. She explained that while Google is the default, users can change to DuckDuckGo or other solutions:
“Right now, Google is the most popular search engine. We do support Google but we also have built-in support for DuckDuckGo, and we recently also rolled out support for Ecosia”
Second, the deal could be blocked on antitrust grounds. The company last year faced a class-action lawsuit alleging that the arrangement was harmful to both competing search engines, and to businesses who advertise with Google.
The complaint charges that Google and Apple agreed that Apple would not compete in the internet search business against Google. The complaint claims that the means used to effectuate the non-compete agreement included; (1) Google would share it’s search profits with Apple; (2) Apple would give preferential treatment to Google for all Apple devices; (3) regular secret meetings between the executives of both companies; (4) annual multi-billion-dollar payments by Google to Apple not to compete in the search business; (5) suppression of the competition of smaller competitors and foreclosing competitors from the search market; (6) acquiring actual and potential competitors.
The complaint alleges that advertising rates are higher than rates would be in a competitive system. The complaint seeks the disgorgement of the billion-dollar payments by Google to Apple.
The complaint asks for an injunction prohibiting the non-compete agreement between Google and Apple; the profit-sharing agreement; the preferential treatment for Google on Apple devices; and the payment of billions of dollars by Google to Apple.
Competition regulators around the world are also considering antitrust action against the companies for the same reasons. Europe’s Digital Markets Act could well outlaw the arrangement, for example.
Protracted court battle likely
Bernstein analyst Toni Sacconaghi last year said that the regulatory threat was real, but that any legal block to the deal was likely years away. The New York Times suggests that this may be the consensus view among analysts, in part because both companies will challenge it in court.
The companies are expected to challenge the law in court, potentially tying up the legislation for years. The probability it gets bogged down leaves analysts sticking to their consensus: “Big Tech is going to be more powerful. And what’s being done about it? Nothing,” Mr. Kramer of Arete Research said.
It’s part of a lengthy piece on the threats faced by big tech, and how Apple and other giants are likely to weather the storm.
Apple, Amazon, Microsoft and the parent companies of Facebook and Google have lost $2.7 trillion in value so far this year, about the annual gross domestic product of Britain.
So what have the companies done about this thrashing on Wall Street? Microsoft has doubled its employees’ bonus pool, Google has committed to hiring more engineers, and Apple has showered its top hardware talent with $200,000 bonuses.
The dissonance between the stock market’s relative panic and the business-as-usual calm among tech giants foreshadows a period when analysts, investors and economists predict that the world’s largest companies will widen their lead in their respective markets.
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