Apple losing Google’s $20B+ would be just a blip in its Services trajectory

Google has for years made billions of dollars worth of payments to Apple in return for being the default search engine on Apple devices. A court ruling yesterday appears to have declared those payments illegal under antitrust law.

But while that would be a setback to the company’s impressive Services revenue, in the scheme of things it wouldn’t amount to much more than a blip …

Google’s $20B+ annual payment to Apple

If you carry out a web search by typing your query into the integrated Safari bar, that search will (unless you manually changed the default) be carried out on Google. That’s because Google pays Apple a multi-billion dollar sum each year for the privilege.

That’s a great deal for Google, because it gets a huge amount of its search traffic from Apple users, and thus the ability to place ads in front of them. Apple customers are also a particularly valuable demographic for advertisers, thanks to the fact that they have higher than average incomes.

It’s also a great deal for Apple because it’s free money. They have to set a default, and Google is the best-known search engine, so they’d probably do it anyway.

The exact amount has never been revealed, and Apple hides it inside its Services revenue, but it was estimated to have climbed from the low single-digit billions at the outset to over $20B today.

Those estimates appear to have been pretty accurate, because the antitrust case against Google resulted in the accidental disclosure of the 2022 figure, which was indeed $20B.

Antitrust ruling against Google

Google has been the subject of a long-running antitrust case, in which the company was accused of abusing its dominant position in the search industry to hamper competitors.

Filed back in 2020, the Department of Justice (DOJ) argued that Google used illegal practices to allow it to maintain a near-monopoly in web search. Top of the list here was the annual payment to Apple, meaning that other search engines were severely disadvantaged.

The judge in the case ruled that, yes, Google’s anticompetitive behavior is indeed illegal.

What does this mean for Apple?

It’s likely that the only way Google could right the wrong is by ceasing to make the payments. (We don’t know for sure, as that’s a matter that will take considerable time and billable hours by high-priced lawyers to determine.)

If so, Apple would lose more than $20B a year from its Services revenue. If we take the one known year as an example, here are the figures for 2022:

• Apple’s total Services revenue: $78.13B
• Google’s payment: $20B
• Remaining revenue: $58.13B

That’s a sizeable hit, accounting for around a quarter of the total.

But when you’re a company worth trillions, then it’s kind of a case of ‘twenty billion here, twenty billion there, pretty soon it starts adding up to real money.’

Apple last year made $85B from Services, so if it loses the Google payment, it’s a setback, sure – but aside from a one-off recalibration, it isn’t going to change that upward trajectory.

To put it into perspective, yesterday’s drop in the share price saw $161B of market cap wiped out in the course of a single day of trading. So Apple would like to keep Google’s $20B a year, sure – but it won’t be left hurting without it.

Photo by Giorgio Trovato on Unsplash