Google is under intense scrutiny, entangled in a contentious legal battle with the US Department of Justice over alleged market dominance abuse in an antitrust case. Central to this issue is the agreement between Google and Apple, where Google Search holds the default position on iPhones. Initial reports indicated an annual payment of nearly $15 billion for this privilege. However, a recent Bernstein financial report, as reported by Apple Insider, indicates that the deal may be even more financially rewarding.
The report suggests that the Information Services Agreement (ISA) between Google and Apple is likely valued at $18 billion to $20 billion in annual payments, constituting approximately 14-16 percent of Apple’s annual operating profits.
A blow to Apple’s annual revenues?
If Google loses the case, the US DOJ might compel both firms to terminate the agreement, potentially affecting Apple’s income. Nevertheless, as per the Bernstein report, Apple might explore continuing the deal internationally or forging a similar arrangement with a different entity.
Crucially, the report emphasizes that Google is the one facing the trial, not Apple. Theoretically, Apple could establish a new partnership with an alternative search engine to secure the default position, or it could maintain its deal with Google beyond the borders of the United States.
Microsoft executives, when testifying, suggested that Bing Search could serve as a viable alternative if Apple’s deal with Google were to end. In contrast, Apple defended its use of Google Search as the default engine, asserting it’s the best choice available.
Being the default search engine on iPhones holds significant value for Google. Search advertising revenues are a cornerstone of Google’s income, prompting them to willingly pay Apple nearly $20 billion annually. The report notes that Apple maintains control over access to its substantial user base, responsible for generating over $60 billion in advertising revenues. Consequently, it is expected that Apple will continue to negotiate a commission (estimated at 25-30 percent) for granting access to these advertising revenues.
