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Google pays Apple an annual default search fee of $12 billion, accounting for 1/5 of the latter’s profit



Naija Tech News (NTN) on 26, and in content, Google pays Apple an annual default search fee of $12 billion, accounting for 1/5 of the latter’s profit, apple, Google .

The US Department of Justice is trying to punish Google for anti-competitive behavior in the Internet search field, but this may also make Apple suffer. Analysts estimate that Google pays US$8 billion to US$12 billion a year to make itself the default search engine on Apple’s iPhone and other devices. This is the core of the US Department of Justice’s antitrust lawsuit against Google last week. This transaction is also the core of Apple’s service division, which has been the largest contributor to Apple’s growth in the past few years.

The U.S. Department of Justice used this transaction dating back 15 years as an example to illustrate how Google used its huge profits to prevent competition. For Apple, this is a profitable transaction that proves the great value of reaching more than 1 billion device users worldwide. Although the outcome of the Justice Department’s lawsuit is far from clear, analysts and investors said that given that Google’s fees accounted for as much as one-fifth of Apple’s total profits, losing the deal could cause considerable damage to Apple. Blow.

Google pays Apple an annual default search fee of  billion, accounting for 1/5 of the latter’s profit

Bernstein analyst Toni Sacconaghi said: “If the case goes through to the end, Apple may suffer a greater financial impact than Google.” He estimated that if the deal with Google is completely Cancellation, Apple’s stock price may fall as much as 20%. But if Apple can offset the damage through other transactions involving Google and its competitors, the impact may be much smaller.

Last week, when the US Department of Justice’s lawsuit against Google was exposed, investors seemed to be dismissive of this threat, and Apple’s stock price even rose against the trend that day. Mark Stoeckle, chief executive of Adams Funds, said the lawsuit may take a long time to reach a verdict. The Adams Fund is one of Apple’s largest shareholders. Stocker questioned whether Google’s deal with Apple is really illegal. How does this differ from consumer goods companies paying grocery stores to get better shelf positions?

Stocker said in an email: “There is no doubt that if this kind of transaction ends, it will have a negative impact on Apple.” But at this point, he believes that the risks facing Apple are manageable. Apple did not respond to a request for comment on the US Department of Justice lawsuit, and the Department of Justice has not accused Apple of improper conduct. Google refuted these allegations, saying that users use its search engine because it is the best, not because they cannot find an alternative engine.

Last week, Google’s chief legal officer, Kent Walker, stated in a blog post that Google’s relationship with Apple is nothing special and “is no different from the agreements traditionally used by many other companies to distribute software.”

The two companies first reached an agreement in 2005, when Steve Jobs was still Apple’s chief executive officer, and Google search was the default engine in Apple’s Safari web browser on Mac computers. With the debut of the iPhone in 2007, the deal expanded the scope. The two companies have never announced the exact terms of the transaction. In 2016, in other lawsuits involving the search giant, information about Google’s large payments to Apple surfaced. In the course of the lawsuit, the court mentioned that as part of the transaction, Apple received a $1 billion payment from Google in 2014.

Analysts said that since then, this number has grown rapidly, despite differences in their estimates of specific amounts. The U.S. Department of Justice lawsuit pointed out that analysts estimated that Google paid between $8 billion and $12 billion annually for the transaction, and said that this is equivalent to 15% to 20% of Apple’s profits. Apple reported that its profit for the fiscal year ending September 2019 was $55.26 billion, and many analysts estimate that this number has increased slightly in the past year. The company is scheduled to announce its 2020 fiscal year results on Thursday.

If the US Department of Justice’s antitrust actions disrupted the Google-Apple deal, Google would also face great risks. The filing documents show that last year Apple devices accounted for almost 50% of Google searches. Analysts, including Sacknaji, speculate that Apple may develop its own search business in order to compete for advertising revenue, even through the acquisition of DuckDuckGo. DuckDuckGo is a small search engine that, like Apple, also emphasizes privacy. Any such move will add a potential strong competitor to Google, although it still occupies an overwhelmingly dominant position in the search field.

Apple’s deal with Google is essentially pure profit, which supports Apple CEO Tim Cook’s efforts to change the direction of the company, because Apple faces the problem of stagnant iPhone sales, which accounts for about half of the company’s revenue. . iPhone sales peaked in fiscal year 2015, and its revenue reached a peak of US$167 billion in fiscal year 2018. Google’s transactions accounted for a large part of Apple’s so-called services business, which has soared from approximately US$20 billion in fiscal year 2015 to an analyst’s estimate of US$53 billion in the last fiscal year.

Apple’s major shareholder Synovus Trust’s technology-focused senior portfolio manager Daniel Morgan (Daniel Morgan) said that with multiple search engines paying for placements, Apple may still be able to raise some of the funds. For example, in Europe, after losing a lawsuit against European regulators, Google now allows Android phone users to choose which search engine to use.

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