Google’s Multi-Billion Dollar Payment to Apple for iPhone Placement in Jeopardy
In the ongoing antitrust case against Google by the US Department of Justice (DOJ), the legality of the company’s agreement with Apple, which made it the default search engine on iPhones, is being questioned. A new report has revealed the significant amount of money involved in this deal. The antitrust case aims to determine whether Google engaged in anti-competitive practices to maintain its position as the default search engine on various iPhone models, including the iPhone 12, iPhone 13, iPhone 14, and iPhone 15. Microsoft CEO Satya Nadella recently testified in the case, criticizing the practice of tech companies forming exclusive partnerships with platforms to stifle competition, referring to it as “problematic” behavior.
Bernstein, a firm that advises investors on betting, has released a report in which it reiterated its previous estimates of how much Google will pay Apple. “We believe it is possible that the federal courts will indict Google and force it to terminate its search agreement with Apple. We estimate that the ISA is worth $18 billion to $20 billion in annual payments from Google to Apple, equivalent to 14 percent to 16 percent of Apple’s annual operating profits,” The The report quoted by the Register says.
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Why Google pays Apple
If you’ve used an iPhone, you’ve seen the combined search and URL bar where you usually submit your search queries and quickly add links. You must have noticed that whenever a search query is made, it opens a Google results page. This can be changed manually if you prefer Bing or DuckDuckGo, but if not, it will remain fixed for Google Search by default. And people usually don’t change their default search engine.
As Nadella said in a statement, “assumptions are the only thing that matters when it comes to changing user behavior.” This is a privileged position for Google because it controls the Internet traffic from the huge number of iPhone users. Moreover, it is already the default search engine on Android smartphones because Google owns Android. This allows Google to show relevant ads to users alongside search results, and the tech giant earns a huge amount of money from advertisers.
According to reports, this is the reason why Google entered into an exclusive agreement with Apple, where it pays the company a large amount every year, which is 14-16 percent of Apple’s annual profits.
But with the DOJ antitrust proceedings underway, Apple has a lot to lose.
Apple could lose up to $20 billion if Google loses the case
Banning Google from paying Apple to remain the default search engine will have a big impact on Apple’s bottom line as well. A level playing field affects its turnover, which means that both companies are at a loss. However, Bernstein’s report emphasizes that this is not the case.
“Importantly, Google is in the trial, not Apple, and Apple could (in theory) partner with another search engine to be the default search engine (and/or maintain a contract with Google outside the US),” The Register quoted the report as saying. “One more likely scenario is that Apple offers an opt-in screen. We see that Apple controls access to its installed base, which generates about $60B+ in ad revenue, and thus we believe Apple will continue to command premiums (in the 25-30% range) to generate search advertising revenue. Furthermore, the introduction of a selection screen could offer Apple the opportunity to launch its own search engine as an alternative – something it probably wouldn’t do today without raising the eyebrows of regulators”.
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