The money that Google pays Apple to be the default iOS search engine is poised to become a much smaller part of Apple’s Services revenue.
In its most recent quarterly filing with the Securities and Exchange Commission, Apple singled out licensing as one of the main factors for its 31 percent increase in Services revenue over the past quarter. But Google parent company Alphabet told investors that the money paid to distribution partners — including Apple — will slow down this year.
Last quarter, Google reportedly paid $2.9 billion in total fees to its combined distribution partners. This was an increase of 61 percent year over year.
According to numbers crunched by analyst Toni Sacconaghi of Bernstein, Google likely paid Apple upward of $3 billion in 2017. That’s around one-third of Google’s distribution traffic-acquisition costs for the year.
Apple and Google’s iOS search deal
The report does not spell out exactly why the fees may shrink. As far as we know, Apple and Google have a “per-device” deal, through which Apple earns 75 cents on every $1 of search revenue Google makes on iOS. This arrangement keeps the accounting simple.
Fortunately, if true, this revenue slowdown comes at a good time for Apple.
It’s true that the Google search deal is incredibly easy money for Apple. Cupertino literally has to do nothing to collect the cash. However, Apple is enjoying growing success with other services like Apple Music, the App Store, Apple Pay and iCloud. Services is now a bigger part of Apple than just about any non-iPhone division.
Source: The Wall Street Journal