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Google’s Licensing Fee Played Big Role in Apple’s Service Revenue Growth

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Although the details of licensing fees that Google pays to Apple to direct traffic to its search business are kept under tight wraps by both companies, it seems that the fees played a significant role in the iPhone maker’s most recent quarter, as revealed by Apple’ s quarterly filing with the SEC earlier this week.

According to The Wall Street Journal, Apple named licensing as the top contributor to the 31% year-over-year jump in services revenue the company reported for its fiscal second period ended March 31.

Although licensing for Apple includes much more than just the money coming from Alphabet, Google’s parent company, several analysts believe the search engine giant is the most significant contributor to this part of Apple’s business.

“But don’t expect either company to shine more light on it. More searches mean more ad revenue for Google. But traffic acquisition costs paid to distribution partners are a significant expense. Those fees totaled $2.9 billion for the March quarter–up 61% year over year and the equivalent of 13.2% of revenue from the company’s owned properties compared with 10.4% for the same period last year. Changes in “partner agreements” were cited as a major reason for the jump”.

Whether this kind of growth will continue for Apple, remains to be seen since Alphabet has told its own investors that it expects growth in the traffic acquisition costs paid to distribution partners, which include Apple, to start slowing this year.

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