According to a new investor’s note by Bernstein analyst A.M. Sacconaghi Jr., Google is expected to pay nearly $3 billion to Apple this year, up from $1 billion just three years ago, in order to remain the default search engine on iPhones and iPads (via CNBC). The analyst highlighted that Google’s licensing fees make up a large bulk of the iPhone maker’s services business.
“Court documents indicate that Google paid Apple $1B in 2014, and we estimate that total Google payments to Apple in FY 17 may approach $3B,” Bernstein analyst A.M. Sacconaghi Jr. said. “Given that Google payments are nearly all profit for Apple, Google alone may account for 5% of Apple’s total operating profits this year, and may account for 25% of total company OP growth over the last two years.”
While Apple says that its services business is a fast growing segment of the company, Bernstein sees pros and cons in the payments. Sacconaghi said that Google might decide to back away from paying Apple any licensing fees if it feels confident enough that its search engine is so popular Apple won’t include any other option by default.
But at the same time, the analyst noted that iOS devices contribute nearly 50% to Google’s mobile search revenue, which means Google might be too afraid to walk away from its licensing deal with Apple.
Looks like for now, it’s a win-win for both Apple and Google.