Investment research company Bernstein has said in a note to investors that Google is paying Apple billions of dollars every year just to remain the default search engine on iOS devices. It expects Google to pay Apple $3 billion this year just for this privilege while pointing out that the licensing fees from Google likely account for a large percentage of Apple’s services business.
In its recent earnings results, Apple has been highlighting the stellar performance of its services business. It has frequently been pointing out that the services business alone would soon be as large as a Fortune 500 company.
“Court documents indicate that Google paid Apple $1B in 2014, and we estimate that total Google payments to Apple in FY 17 may approach $3B,” said Bernstein analyst A.M. Sacconaghi Jr.
Google’s payments are nearly all profit for Apple which is why the fees from the internet search giant may account for almost 5 percent of Apple’s total operating profits this year.
Google could decide to stop paying the fees if it feels that its search engine is popular enough with iOS users that Apple won’t risk including another option by default. However, since there are hundreds of millions of iOS devices out there, they contribute around 50 percent of Google’s mobile search revenue.
If Google were to decide to play hardball with Apple on this, it may prove to be a double-edged sword for the company. This might be one of the main reasons why Google hasn’t walked away from this licensing deal with Apple. It may view these billions of dollars in payments to Apple as the cost of doing business.