Apple won't risk ditching Google

As featured on TM Forum's the Insider blog

Surprise, surprise! Google pays Apple $1 billion per annum to make sure it is the default search engine on all those millions of iOS devices out there. Money for jam you might say? After all, what other search engine could Apple promote as their default?

Oh yes, there’s Bing, but that belongs to the other archrival, Microsoft. After the debacle with replacing Google Maps on iOS with its own homegrown not-so-great Maps application, it is highly unlikely that Apple would tempt fate a second time. Anyway, they don’t have their own search engine – yet.

So why is Google paying Apple when it is pretty clear that there is very little other choice for Apple? According to a report titled ‘The Next Google is Google’ by Morgan Stanley analyst, Scott Devitt, Google’s mobile business depends heavily on iOS devices. In fact, a whopping 80% of mobile advertising revenues come from Apple mobile devices. That figure alone blows the iOS/Android general market share figures out of the water. There may be more Android devices out there, but their owners are obviously not as ad-happy as their Apple counterparts.

By the way, those traffic figures became public only because of the patent and copyright infringement battle between Oracle and Google and comments made by Google CEO, Larry Page. Another interesting revelation from Devitt is that he believes the payment is based on a very simple fee per device, and not a revenue sharing deal as generally believed.

That makes a lot of sense as Google would be reticent to share its ad revenues with anyone, let alone opening them up to a ‘competitor.’ Apple, on the other hand, seems only too happy to release its iOS device sales figures. Google pays once, up front, but gets a lifetime customer using Google by default. Apple also has a hedge against users going to Google.com and searching from there instead of the default search box on iOS.

Google is already known to pay Mozilla $300 million in order to keep Google search the default option on Firefox. Devitt estimates Google controls 95% of the mobile search market dominated by Apple and Android and that “paying ~$1 billion a year for a monopoly on the most lucrative online business in the world is a no-brainer.” Who could argue?

This is one example of how rivals can actually benefit from each other in today’s digital ecosystem. It also helps explain why CSPs like Free in France are questioning why they are not sharing in some of Google’s lucrative revenue stream, considering they provide the means of connection for many of those mobile devices. Take away that brilliant connectivity and no amount of search box monopolization will be of any value. Fair point, but not one that will scare Google anytime soon.

Apple is one big player, owning a big slab of the mobile device market. CSPs are a disparate lot of relatively small operations (in comparison to Google and Apple) and could only carry the necessary gravitas to move Google if they were a monopoly themselves in a market that Google desperately needed. Even then, Google could probably buy them out with one day’s revenues. It seems CSPs are going to have become much creative if they are to extricate money from Google.
 

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