Apple could be out $20 billion a year if Google loses DOJ antitrust case

AppleInsider

New financial reports claim that Google pays Apple much more to be the iOS default search engine than previously believed, and that the deal is in jeopardy.

Google pays to be the default

Google is currently embroiled in an antitrust case brought by the Department of Justice (DOJ) over the company's alleged abuse of its market dominance. As part of the trial, Apple executives have been called as witnesses, and questioned about what was previously said to be Google's paying $15 billion annually to remain the default search engine.

Now according to a Bernstein financial report first spotted by The Register, Google is actually paying Apple significantly more.

"We estimate that the ISA [Information Services Agreement] is worth $18B-20B in annual payments from Google to Apple," says the report, "accounting for 14-16 percent of Apple's annual operating profits."

This is around double what the DOJ itself has estimated and the deal is being held up as an example of the antitrust behavior Google is accused of. Consequently, the Bernstein report says the company believes that "there is a possibility that federal courts rule against Google and force it to terminate its search deal with Apple."

However, Bernstein believes that even ending a $20 billion deal with Google is "unlikely to be onerous" for Apple. That's because there would be little to stop Apple making a similar deal with another search company.

"Importantly, Google is on trial, not Apple," continues the report, "and Apple could (in theory) partner with another search engine to be the default (and/or retain the agreement with Google outside the US)."

Apple could offer users a choice, too, but however a change is made or however options are presented to users, Bernstein doesn't see Apple losing out.

"We note that Apple controls access to its installed base, which generates ~$60B + in advertising revenues," says the company's report, "and accordingly, we believe that Apple would continue to command a commission (in the 25-30 percent range) for providing access to those search advertising revenues."

Apple has not commented publicly on what it gets paid by Google. However, Apple's Eddy Cue said during the trial that "We make Google be the default search engine because we've always thought it was the best."

Read on AppleInsider

mikethemartian

What other search engine is profitable enough to pay that amount to Apple every year?

cincytee

The immediate effect might be the loss of $20 billion in payments to Apple, but Apple would clearly then institute its own search engine, which would generate billions in revenue, much like Google, so the overall impact would be much smaller financially and also put Apple in charge of its own search revenues. The question then would be whether that in itself would raise regulatory scrutiny.   

avon b7

I would think Apple is not too comfortable with the process as they could easily get sucked into a broader net if someone claims they are accepting the payments, not to make Google the default, but to ensure Apple doesn't make a search engine of its own.

I would think there is a very thin line here. 

If the deal gets squashed and Apple does get into search, they could breathe a sigh of relief and say it was good while it lasted. 

I'm supposing Google will not only lose the deal in that scenario but get fined to some degree too. 

darelrex

mikethemartian said:

What other search engine is profitable enough to pay that amount to Apple every year?

Probably any competent search engine would be that profitable if they landed this deal — the money Google is currently paying Apple has been estimated to be only about 1/3 of the ad money Google gets by having this default position.

kellie

cincytee said:

The immediate effect might be the loss of $20 billion in payments to Apple, but Apple would clearly then institute its own search engine, which would generate billions in revenue, much like Google, so the overall impact would be much smaller financially and also put Apple in charge of its own search revenues. The question then would be whether that in itself would raise regulatory scrutiny.   

The Google deal yields pure profit for Apple.  There are no costs to Apple to generate this revenue.  For Apple to create and operate its own search engine would be very expensive and wouldn’t yield the net profit the Google deal produces.  It’s also potentially at odds with Apple’s marketing message about the importance of privacy.  

firelock

cincytee said:

The immediate effect might be the loss of $20 billion in payments to Apple, but Apple would clearly then institute its own search engine, which would generate billions in revenue, much like Google, so the overall impact would be much smaller financially and also put Apple in charge of its own search revenues. The question then would be whether that in itself would raise regulatory scrutiny.   

I agree. Google’s payments are about incentivizing Apple not to make their own search engine as much as anything else.

danox

Google is paying Apple for the default position in search because it eliminates competition from other companies, and because within the iOS/MacOS, Google makes more profit within the Apple ecosystems than they make in the entire Android ecosystem combined (a guess). In short, Google gets to kill two birds with one stone, the Justice department if they were doing their job would find out exactly how much revenue and profit does Google actually make in each ecosystem worldwide. (my guess is that Google is far more profitable within the Apple ecosystems than their own).

The Android operating system only exists solely to gain access and to generate information for a Ad company (Google) to sell/target its ads, Google has no loyalty even to its own ecosystem. Its only purpose as a company is to hoover in information.

It would be a win-win for Google, to have no payment and get access to iOS and the Mac eco-systems for free like Spotify, the solution, the Justice department, or the EU will dream up is a free socialized default position for everyone in the name of competition, similar to the current movement, allowing companies to camp out within the App Store for no charge, because that’s what gatekeepers do, all the work and then they (Apple) turn around and give it away for free.

9secondkox2

So stupid. There is no antitrust when you have options. Apple provides them in settings. 

Google isn’t the only option. Enabled by default is fine. Let apple do business the way they want. 

Once the government starts dictating the minutiae of how an option is selected or how a default setting is set up, it has become a private sector micromanager and that is clear overreach. 

This isn’t the old internet explorer precedent where you had to find and use your precious dial up resources download a competitor to compete with the bundled browser (which was hooked into the OS itself. 

Apple already bundles these services and you have one conveniently enabled off the bat, with other choices ready to go at the touch of a button. 

A literal non-issue. And I say this as someone who doesn’t use Google. 

ericthehalfbee

Where do they get this figure? And where in Apple earnings calls does it belong? Such a large number it’s not something you can just hide under “other”.

JinTech

cincytee said:

The immediate effect might be the loss of $20 billion in payments to Apple, but Apple would clearly then institute its own search engine, which would generate billions in revenue, much like Google, so the overall impact would be much smaller financially and also put Apple in charge of its own search revenues. The question then would be whether that in itself would raise regulatory scrutiny.   

And then Apple would be accused of being a monopoly. The irony here. 

gatorguy

darelrex said:

mikethemartian said:

What other search engine is profitable enough to pay that amount to Apple every year?

Probably any competent search engine would be that profitable if they landed this deal — the money Google is currently paying Apple has been estimated to be only about 1/3 of the ad money Google gets by having this default position.

Bing decided it was too rich for them. What search provider is in a better position than either Microsoft or Google? I don't see anyone else stepping up to the plate with anything close to what Apple expects, revenue-wise. On top of that, there's no search engine able to source the richness of results Google can at the moment via specialized search engines they offer, among them Google Scholar, Google Patent Search, Google Finance, Google Trends, Google Books.... 
Then add in Google image matching (Lens) which I use all the time to help identify a customer's use of a copyrighted image, and Google Translate when the only/best search results happen to be in a foreign language.  

When Eddy Cue said they use Google because it's the best search provider there's no reason to believe he was lying. Apple started out with Bing, tried 'em and didn't stick with them, so apparently Google was a better option.

avon b7

Google is my go-to. It is hands down the best search tool available to general users. It's also great for results in multiple languages and is pretty good at deciding when you need local language results or results in the same language but from further afield. 

There may be other issues regarding abuse of its position but that position has its appeal and I dare say even with it not being the default.

Obviously being the default gives it a safety net but most other engines aren't that great so improvements are necessary. 

dave2012

9secondkox2 said:

So stupid. There is no antitrust when you have options. Apple provides them in settings. 

Google isn’t the only option. Enabled by default is fine. Let apple do business the way they want. 

Once the government starts dictating the minutiae of how an option is selected or how a default setting is set up, it has become a private sector micromanager and that is clear overreach. 

This isn’t the old internet explorer precedent where you had to find and use your precious dial up resources download a competitor to compete with the bundled browser (which was hooked into the OS itself. 

Apple already bundles these services and you have one conveniently enabled off the bat, with other choices ready to go at the touch of a button. 

A literal non-issue. And I say this as someone who doesn’t use Google. 

While what you say makes sense, it doesn't explain to me the reason for the massive payment.  The fact that the payment exists implies a cartel to me. 

gatorguy

dave2012 said:

9secondkox2 said:

So stupid. There is no antitrust when you have options. Apple provides them in settings. 

Google isn’t the only option. Enabled by default is fine. Let apple do business the way they want. 

Once the government starts dictating the minutiae of how an option is selected or how a default setting is set up, it has become a private sector micromanager and that is clear overreach. 

This isn’t the old internet explorer precedent where you had to find and use your precious dial up resources download a competitor to compete with the bundled browser (which was hooked into the OS itself. 

Apple already bundles these services and you have one conveniently enabled off the bat, with other choices ready to go at the touch of a button. 

A literal non-issue. And I say this as someone who doesn’t use Google. 

While what you say makes sense, it doesn't explain to me the reason for the massive payment.  The fact that the payment exists implies a cartel to me. 

Is it evidence of a cartel when a developer pays 30% to Apple? This is essentially the same revenue split Apple traditionally demands. 

22july2013

kellie said:

The Google deal yields pure profit for Apple.  There are no costs to Apple to generate this revenue.

So you've never heard of "opportunity cost?" The New Oxford American Dictionary defines it as "the loss of potential gain from other alternatives when one alternative is chosen." A good CEO would be fully aware of these "costs."

mazda 3s

cincytee said:

The immediate effect might be the loss of $20 billion in payments to Apple, but Apple would clearly then institute its own search engine, which would generate billions in revenue, much like Google, so the overall impact would be much smaller financially and also put Apple in charge of its own search revenues. The question then would be whether that in itself would raise regulatory scrutiny.   

Given the state of Siri compared to Alexa or the Google Assistant, I wouldn’t count on it. 

danox

ericthehalfbee said:

Where do they get this figure? And where in Apple earnings calls does it belong? Such a large number it’s not something you can just hide under “other”.

That’s the job of the justice department/and the court system to dig out, but so far they have been very reluctant, probably because they might actually have to think and do something?

coolfactor

20 Billion is not a small number. I fail to see how this could be missed on the quarterly financial reports. Is it bundled under a generic "Operating Income" or something?

danox

avon b7 said:

Google is my go-to. It is hands down the best search tool available to general users. It's also great for results in multiple languages and is pretty good at deciding when you need local language results or results in the same language but from further afield. 

There may be other issues regarding abuse of its position but that position has its appeal and I dare say even with it not being the default.

Obviously being the default gives it a safety net but most other engines aren't that great so improvements are necessary. 

Long-term the default position) cuts out competition just like all those freebie programs Googles offers within iOS and MacOS ecosystems, and the same applies to Microsoft, those freebies by the so-called Gatekeepers does stifle competition, of the three  (Gatekeepers as defined by ever moving EU), who is camping out the less in the others yard over the years? In fact, their software presence has been rudimentary over the years.

The governmental agencies have problems differentiating between the three companies. They are all quite different. They are not the same in the way that they generate revenue and profit but the different government agencies want to treat them the same, but they are not.

coolfactor

cincytee said:

The immediate effect might be the loss of $20 billion in payments to Apple, but Apple would clearly then institute its own search engine, which would generate billions in revenue, much like Google, so the overall impact would be much smaller financially and also put Apple in charge of its own search revenues. The question then would be whether that in itself would raise regulatory scrutiny.   

Google doesn't make money from Search. They make it by Ad impressions in the search results and websites, and by paid services that augment the search, such as Maps.

Apple already gave up on advertising (remember iAd?). There would be no overnight replacement for this. Google has invested decades into developing what they have now.

Pretty much every website owner knows "they need to perform well in Google". Every other search engine is an afterthought, as would Apple be.