Google's Reported $1B iPhone Deal Highlights Value of Mobile Search

By Jaikumar Vijayan  |  Posted 2016-01-22 Print this article Print
iPhone Search

A court document reportedly confirms what many have speculated for years about how much Google was willing to pay to own the default search engine on Apple iPhones.

Reports this week that Google paid Apple $1 billion in 2014 to make its search bar the default choice on iPhones confirms previous speculation about an existing revenue-sharing agreement between the two technology giants.

It also sheds some light on the enormity of the revenues and profits at stake for search engine companies and Internet firms in general in the mobile space.

Bloomberg Business on Thursday reported that it had seen the transcript of a court document that is no longer publicly available showing that Apple had received $1 billion from Google in 2014.

The transcript, which pertained to a copyright fight between Google and Oracle involving the former's use of Java, showed that Apple also received a percentage of the revenue that Google derived from having its search bar on iPhones.

According to Bloomberg, the transcript had the revenue share number at 34 percent but wasn't clear on whether that was the amount that Apple received or that Google got to keep.

Both Google and Apple protested the public release of the information, citing the highly confidential nature of their agreement. In separate motions filed in U.S. federal court in San Francisco, both companies demanded that the document be sealed and references to the 34 percent revenue share be redacted from public records.

The transcript has since been removed from electronic court records related to the Oracle and Google case. But the apparent fact that it quotes a $1 billion payment by Google to Apple substantiates several previous reports on the business arrangement between the two companies.

Two years ago, Bloomberg itself quoted a Morgan Stanley report, which estimated that Google was paying Apple $1 billion to keep its search bar on iPhones. One year before that, in 2012 an analyst at investment management firm Macquarie Group estimated that Google had paid the same amount in 2011 to keep Google the default search engine on Safari.

"I believe it has been general knowledge for quite a while," said Ezra Gottheil, an analyst with Technology Business Research.

Such an arrangement makes sense for both Google and Apple and is not terribly unusual, he said. "Google sets Google as the default search engine for the Chrome browser itself, and other browser vendors have their own deal. Siri actually uses Bing, and I imagine there is a transaction related to that choice," Gottheil said.

Gaining default status for its search engine on a mobile platform like the iPhone is valuable for Google. "And since Apple doesn't have its own search engine, at least so far, it seems reasonable that the company derives some revenue from leasing that space," he said.

Default settings have tended to be controversial in the past, said Charles King, principal analyst at Pund-IT. But what is happening in the Google-Apple agreement is very different from the days when Microsoft embedded its Internet Explorer Web browser into the Windows OS so it could kill off Netscape, King said. Netscape was by far the most popular browser of the 1990s during the Web's early days.

"Given the overall popularity of Google search, iPhone owners who prefer it certainly aren't being harmed. Plus, it's easy to change the default search engine in iOS so consumers who prefer AOL, Ask, Bing, Yahoo or another platform can easily do so," King noted.

From Google's standpoint, a $1 billion payment and the revenue-sharing agreement probably make sense, he added. "Google's revenues revolve around search-related advertising that's increasingly driven by mobile technologies."

While Android is the leading smartphone OS worldwide, Apple's iPhones represent an attractive segment of that market that Google would like to reach, he said. "That it apparently willingly agreed to these terms reflects Apple's importance to Google's economic health."


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