In a note to its investors, research firm Bernstein says that Google will be paying $3 billion to Apple to remain the default search engine on iPhones and iPads. This will a 3x increase from $1 billion that Google paid to Apple just three years ago.
Apple accounts for the licensing fees money received from Google under its services business which is among the fastest growing segment of the 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,” Bernstein analyst A.M. Sacconaghi Jr. said. “Given that Google payments are nearly all profit for Apple, Google alone may account for 5% of Apple’s total operating profits this year, and may account for 25% of total company OP growth over the last two years.”
The research firm sees such huge payments from Google to Apple as both a positive and negative.
Analyst Sacconaghi says that iOS devices account for 50 percent of Google’s search revenue and the company cannot risk walking away from this licensing deal. This could open the gate for potentially other companies to take advantage of it.
On the other hand, at the rate at which Apple’s licensing fees are increasing, if Google feels confident enough about its brand, it could back away from the deal. This is because due to the sub par experience and results offered by other search engines, iOS users could end up manually switching their default search engine in Safari to Google.[Via CNBC]