Apple Inc. (NASDAQ:AAPL) usually demands a lot of investment from its millions of ultra-loyal users across the globe. This has attracted the eyeballs of many other companies who have set their eyes on the captive user base of the world’s most valuable company. This statement was again reinforced when it was recently reported by Research firm Goldman Sachs that Google (Alphabet Inc. (NASDAQ: GOOGL)) paid Apple a reported $9 billion in 2018 to secure its position as Apple’s default search engine.
For people who have heard about this for the first time, this isn’t the only instance of the reporting of this deal. Details of this deal have been known for some time now. However, no particular proof of the full transaction is available as of now. The only reported deal of which evidence is available is one from four years ago. Back in 2014, Google paid Apple a total sum of $1 billion to remain as their default search engine on their devices, especially iPhone. But how exactly did the fee, which was whopping $1 billion back in 2014, turn into an even more humongous $9 billion in the span of 4 years?
The answer lies in Google’s financial growth. In 2017, Bernstein’s analysts reported that Google’s mobile revenues more than tripled in between 2014 and 2017. The figures indicate that the increase is from $16 billion in CY’14 to $50 billion in CY’17. Since the revenues increased, so will the fee commanded by Apple, who accounts for a sizable share of worldwide smartphone userbase. Thus, as Google’s fee to Apple is directly linked to Google’s mobile revenue earnings, the fees also seem to be increasing along with the revenues. This explains the steady increase in payment over such a presumably short amount of time.
Apple’s Fee To Increase In 2019
As mentioned above, the payment of money involved in the deal is directly proportional to the amount of money Google earns through its mobile revenue. As such, the ‘fee’ is reported to be $9 billion this year. Analysts expect the ‘fee’ to go up to $12 billion next year.
As such, Google accounts for a quite a large contribution in Apple’s total revenue. Apple has been giving hints as to the fact that a large portion of its revenue is going to come from its services. Now, Apple’s services range from a lot of things, with the App Store being the most prominent among them. However, this ‘fee’ payment by Google also comes under this umbrella of service revenue.
However, the same can also be said about Apple’s contribution to Google’s revenue. Back in 2017, Bernstein’s analysts claimed that Apple’s iOS devices account for a whopping 50% of Google’s mobile revenues.
Apple and Google – A Deal to Last?
With the ever-changing scenario of the tech industry these days, it is hard to predict the longevity of anything at all. This deal is lucrative for both parties, at the moment. It could also happen that Google might decide to stop paying Apple the much talked about ‘fee’, should they be confident of their popularity such that Apple would have no other option to replace them with. As it stands, Apple does use other search engines in its smartphones as well. For example, it uses Bing while searching the web through Siri. So, it is really hard to predict how long it will last. But as long as it does, no party is particularly complaining!