Google could pay Apple up to $3B to hold default search status on iPhones

Google could end up paying Apple as much as $3 billion this year to remain the default search engine on iPhones and iPads, an analyst estimated on Monday.

"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 in an investor memo published on Monday, seen by CNBC.

He argued that Google payments may represent a large chunk of Apple's services business — which Apple has been touting as the size of a Fortune 100 company — and as much as 5 percent of Apple's total operating profits this year. Apple's conventional services income stems from things like iTunes, Apple Music, iCloud, and the App Store.

Apple and Google are effectively locked together, according to Sacconaghi. Google is the world's most popular search engine, and could theoretically call Apple's bluff, stop payments, and remain a default search option. Sacconaghi noted however that iOS devices may generate half of Google's search revenue, something it's unlikely to risk.

The analyst has assigned Apple stock an "outperform" rating with a $175 price target. On Monday shares closed at $159.85, not far from an all-time high of $160.08.

39 Comments

maestro64 5029 comments · 19 Years

About 7 years ago

As Apple installed base of phones, in the hands of people who actually spend money, google has to pay more to maintain access. But My default is no longer Google, so they pay Apple to have access to me, but really do not have access. I love the irony of this.

lkrupp 10521 comments · 19 Years

But iOS has such a minuscule worldwide market share vs Android. It’s almost as if iOS doesn’t even exist. Why would Google even care?

Rayz2016 6957 comments · 8 Years

lkrupp said:

But iOS has such a minuscule worldwide market share vs Android. It’s almost as if iOS doesn’t even exist. Why would Google even care?

Because it's not the size of your user base; it's the quality.

MacPro 19838 comments · 18 Years

lkrupp said:

But iOS has such a minuscule worldwide market share vs Android. It’s almost as if iOS doesn’t even exist. Why would Google even care?

ROFL, 'as if iOS doesn't even exist' too funny, $815 Billion and counting and the anti-Apple folks would tell you Apple is risky as it's all too dependent on iPhones, which in case you haven't noticed run iOS. So I suspect iOS exists big time. You know the odd thing is as I travel I hardly ever see an Android device. Sit in most US airports and it's a sea of glowing Apples on Mac laptops and iPhones and iPads wall to wall. It's as if Android doesn't even exist. ;)