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Google's US$1 billion to Apple for iOS search rights was a steal

Gregg Keizer | Jan. 25, 2016
Oracle attorney spilled 2014 payment in court last week; Google and Apple want to close the barn door after the horse bolted.

"I think [the $1 billion] is not the only cost, but just the cost of getting into the door on iOS," Dawson continued. "It's likely the total was quite a bit more than that."

Google reports its audience acquisition costs, but does not break those down by vendor. The bulk of acquisition costs, Dawson said, were to browser makers -- to Mozilla, for example, until late 2014 -- and to Apple.

A billion dollars or more annually may be real money to people playing Powerball, but to Apple, it's just a small fraction of its money-making efforts, Dawson said. Even if it gets half a billion quarterly from Google, that's a pittance compared to Apple's total income.

In the last four quarters, for example, Apple's revenue averaged $58.4 billion in each. Half a billion would represent less than 1% of each quarter's take.

"In the grand scheme of Apple's revenue, half a billion each quarter is not exactly moving the needle," said Dawson. "But Apple would like to keep it. It's not nothing."

Apple includes payments like Google's in its "Services" reporting line, which for the September 2015 quarter reported $5.1 billion in revenue. "Apple's never given any kind of indication what proportion of [Services] revenue the Google payments may represent," Dawson added.

As Apple's Fithian noted in her filing with the federal court, the Cupertino, Calif. company would very much like to keep it that way.

Other search providers, notably Microsoft (with Bing) and Yahoo, were probably pleased at the disclosure: It gave them an idea of how much it would cost, at a minimum, to convince Apple to replace Google on iOS with their search engines.

Neither Stofega or Dawson thought it likely that Apple would, assuming contracts allow, drop Google as iOS's default search for Yahoo or Microsoft. "At the end of the day, Apple does want to do right by its users," said Stofega. "Therein lies the rub."

His point: Google was both the popular and technological leader in search, and Apple would be unlikely to foreswear its engine for another -- risking user dissatisfaction -- simply because a Google competitor threw more dollars at Cook and company.

"Apple could switch, but at the end of the day Google has proven itself to be the leader in search," Stofega concluded.

Dawson, who two years ago discounted speculation that Apple might switch the default search engine in iOS's Safari browser, agreed.

"Apple's not purely coin-operated on this," Dawson said. "It's not who is the highest bidder. Apple's not going to let some unknown search engine come in here. They want to make sure that it's a good deal for [iOS] users."

A federal court hearing on revisiting the transcript sealing is slated for Feb. 25, when lawyers for Oracle, Google and perhaps even Apple will make oral arguments.

 

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