I concluded in late October that the iPhone is Google’s most important mobile product. At the time, a report said that Google paid Apple $18 billion in 2021 to be the default online search engine on the iPhone.
Fast-forward to early May and court documents from the government’s antitrust case against Google say the search giant paid $20 billion in 2022 for the same honor: Google Search would be the default search engine in Safari on iPhone. I wouldn’t be surprised if that figure continued increasing in the following years.
After all, Apple sells some 200 million iPhones each year, including brand-new converts. The more iPhone users there are, the more Google would have to pay for the privilege of being the default search engine on iPhones.
All this makes me wonder if Google really wants to beat the iPhone, or whether all the hits at Apple over the year are just for show.
This isn’t the first time we’ve seen estimates for Google’s deal with Apple over online searches on iPhones. The annual figure Google supposedly paid Apple was always in the billions. But this time around, the $20 billion detail comes from unsealed documentation from the Justice Department’s antitrust lawsuit against Google.
As Bloomberg reports, Google and Apple hoped to keep the actual figure a secret. Apple execs said that Google paid Apple billions in fees without specifying a number. Then, a Google witness accidentally said that Google pays 36% of its ad revenue to Apple.
Furthermore, the documents indicate that the deal is also very lucrative for Apple. Google’s search fee to Apple amounted to 17.5% of Apple’s operating income in 2020.
Why would Google pay so much money to Apple every year? The answer is simple. The iPhone is an incredible source of income for Google. If it’s paying north of $20 billion a year to be the online search engine, it means Google is making a lot of money from ads that iPhone users see and click as they search the web.
I can’t but wonder what the Pixel series would look like if Google spent north of $20 billion a year to turn the handset into an amazing iPhone alternative. Google has been trying to beat the iPhone for years, or at least gave us the impression that it’s going in that direction. It took hits at Apple every chance it got, while at the same time following many of Apple’s iPhone-related decisions.
Most recently, it attacked Apple over the lack of RCS support in iMessage, a campaign that made Google look like the good guy.
But the Pixel has always had problems. The more recent models prove that Google is more serious about its hardware ambitions. Also, Google has expanded the availability of Pixels considerably in recent years. Pixel phones are sold in more markets every year. But Google still can’t match the iPhone’s reach.
Maybe Google doesn’t really want to invest that much into the Pixel, given that it also has to compete against many smartphone vendors that make their own high-end Android phones. Moreover, Apple makes the most profits in the flagship smartphone category. Not even Samsung can match Apple’s success at selling expensive handsets.
There’s also the matter of online spending on mobile devices. Reports over the years have shown that iPhone users spend more online than their Android counterparts. Maybe ads on iPhone will always be more lucrative than ads on Android and Pixel phones. That could explain why Google is willing to pay as much as it has to for the default search engine slot on the iPhone.
Bloomberg further notes that Microsoft also wanted that placement. The company even offered Apple 90% of its advertising revenue to make Bing the default choice in Safari.
Furthermore, Microsoft was ready for additional concessions, according to testimony from Microsoft CEO Satya Nadella. He said last year that Microsoft was willing to hide the Bing brand from online search.
Unlike Google, Microsoft no longer manufactures mobile phones running a proprietary operating system. Instead, the company offers plenty of apps for both Android and iPhone. And, interestingly, Microsoft has made Android phones of its own in recent years, though it’s not a full-time business.
Apple’s deal aside, you can choose a different default search engine for Safari on iPhone. But most people likely use the default option or look for Google Search explicitly.
Apple has defended its deal with Google, saying in court that it chose the best option. According to MacRumors, Apple’s Eddy Cue said that Apple was concerned about Bing’s reliability. He also said Apple has “always thought [Google] was the best.”
The closing arguments in the DOJ’s lawsuit against Google will drop on Thursday and Friday. A ruling will follow later this year. It’ll be interesting to see what will happen to the Apple search deal with Google if the latter loses the antitrust case. If Google were to lose a big chunk of iPhone search action, we could see the company make an even better effort to beat the iPhone in the coming years.