What you need to know
- Google paid upwards of $10 billion to be the default search engine on iPhone in FY 2020.
- Payments could increase to over $15 billion in FY 2021.
Google is paying an insane amount of money to be the default search engine on the iPhone.
In a note from Bernstein analyst Toni Sacconaghi seen by Ped 30, Google's payments to remain the default search engine on the iPhone may have topped $10 billion in FY 2020. According to the analyst, payments from Google to Apple for this exclusivity may reach upwards of $15 billion in FY 2021.
We now estimate that Google's payments to AAPL to be the default search engine on iOS were ~$10B in FY 20, higher than our prior published model estimate of $8B. Recent disclosures in Apple's public filings as well as a bottom-up analysis of Google's TAC (traffic acquisition costs) payments each point us to this figure…We now forecast that Google's payments to Apple might be nearly $15B in FY 21, contribute an amazing ~850 bps to Services growth YoY, and amount to ~9% of company gross profits.
The report goes further to note that two things could prevent Google from being the default search engine in the future:
- Regulation that could remove the ability for such a deal between the two companies
- Google deciding that the deal is getting too expensive, leading another company to outbid it
We see two potential risks to GOOG's payments to AAPL: (1) regulatory risk, which we believe is real, but likely years away; we see a potential 4-5% impact to Apple's gross profits from an adverse ruling; & (2) that Google chooses to stop paying Apple to be the default search engine altogether, or looks to renegotiate terms and pay less. We have noted in prior research that GOOG is likely paying to ensure Microsoft doesn't outbid it. That said, with payments likely to approach $18 – $20B in FY 22, it not implausible that Google could revisit its strategy.
While Google is by far the most popular search engine, Apple has been getting increased pressure to either make another, more privacy-focused, search engine the default or making users choose their search engine rather than having a default at all. When Apple's Senior Director of Global Privacy, Jane Horvath, was asked this question at a privacy conference earlier this year, she seemed comfortable with the company's current setup.
"Right now, Google is the most popular search engine. We do support Google but we also have built-in support for DuckDuckGo, and we recently also rolled out support for Ecosia."
