Google pays $1bn a year to run Apple's search
By Stewart Mitchell
Posted on 11 Feb 2013 at 13:45
Google will next year pay $1bn to Apple to remain the default search tool in iOS devices, according to a report from Morgan Stanley.
In a report into Google's prospects for investors, Morgan Stanley said it believed Google paid a flat fee per Apple iPad and iPhone, to ensure its search technology was the preset engine for customers.
According to Morgan Stanley, Google makes as much as $4bn a year from mobile search advertising, so making sure its technology drives searches on Apple's devices is a key part of its strategy.
The payments make up part of Google's "traffic acquisition costs" (TACs) which it pays out to companies, including other browsers like Mozilla.
Market analysts have previously speculated that the company had a revenue sharing deal with Apple, but Morgan Stanley believes there's a per-device price for choosing Google for search.
We believe that in exchange for being the default search provider on iOS devices, Google compensates Apple either on a per-device or revenue-sharing basis
"We believe that in exchange for being the default search provider on iOS devices, Google compensates Apple either on a per-device or revenue-sharing basis,” said analyst Scott Devitt, in a report entitled The next Google is Google.
"In our view, a per-device arrangement may be more likely given significantly easier accounting and Apple’s preference for upfront payments to hedge against non-payment for users that navigate directly to Google.com. Google may also prefer upfront payments if it expects mobile search revenue to grow rapidly over the term of its contract with Apple."
The analysts believe Google pays Apple $3.30 per iOS device in return for its inclusion on handsets, with the company expected to hand over $877m to Apple this year - a figure likely to rise to $1bn next year and $2.3bn by 2019.
However, despite the escalating costs, mobile search income driven by its own Android operating system on handsets from third party manufacturers, such as Samsung's Galaxy S3, is likely to outweigh the payments to Apple as the company looks to maintain the 90% mobile search revenue share it holds in the UK.
"Due to the rapid rise of Android device sales from 2010, and iOS’ share of global web traffic declining from a 40s percentage in 2009 to a 20s percentage today, we feel comfortable modelling Google’s Apple-related distribution TAC payments at a stable 30%-35% of total [payments]," the company said.
Is your business a social business? For helpful info and tips visit our hub.
- 20 years of PC Pro: our best covers
- Why we've closed the PC Pro forums
- How to turn off Google Location Tracking
- 20 years of PC Pro: our greatest review mistakes
- 20 years of PC Pro: our first A-List
- Wikipedia's "right to be forgotten" protest hits the wrong note
- 3D printing hits the high street for plastic selfies
- 20 years of PC Pro: What amazed us in our first issue
- How Google Glass ruined my lunch hour
- Smartphone battery packs: can a USB power pack beat the festival battery blues?
- How to sell more ebooks on Amazon
- 10 ways to make your business more secure
- Top five VoIP mistakes
- How to add in-app purchasing to an iPhone, Android or Windows app
- Remote-control ransomware: TeamViewer and software hardball
- Why laptops with serial ports matter to the Internet of Things
- Make your mobile battery last longer
- Small steps into handling Big Data
- Nexus 5: does it really run stock Android?
- How to get broadband to a garden office