A DOJ antitrust action against Google could see Apple lose billions of dollars a year from its Services revenue. The Department of Justice (DOJ) is challenging the legality of Google paying the Cupertino company a huge sum to remain the default search engine on iPhones.
While Apple is under antitrust investigation on a number of different fronts, this particular case is targeting Google …
Google’s annual payment to Apple
Open any web browser on an iPhone and enter a search query into the integrated address/search bar, and it’s Google who gets that traffic. You can change that behavior if you wish, opting instead for a different search engine, but hardly anyone does this – or, in the case of normals – even knows you can do it.
That means that iPhone and iPad owners are a massively lucrative source of income for Google. Not just because they bring lots of traffic, but because those who own Apple kit are a particularly valuable demographic. Ads placed in front of iPhone users can attract a premium.
To safeguard its position, Google pays Apple an annual sum, believed to be a percentage of the ad revenue earned from Apple users.
Neither company discloses the percentage or amount, instead just hiding it in the bucket of Services revenue. However, a lawsuit revealed that it was a billion dollars way back in 2014.
Since then, the sum is believed to have increased dramatically, with informed estimates of $3B in 2017, tripling to $9B in 2018, increasing to $15B last year, and estimated to be $18-20B this year.
Taking the last four quarters as an example, Apple’s total declared Services revenue was just over $77B. If $15B of that was from Google, that’s 19%. Even by Apple standards, that’s a huge sum of money.
DOJ antitrust action against Google
All that money is now under threat. Bloomberg reports that the DOJ is accusing Google of anti-competitive behavior by making the “enormous” payment to Apple in order to maintain its dominant position in the search business.
Google pays billions of dollars each year to Apple, Samsung and other telecom giants to illegally maintain its spot as the No. 1 search engine, the US Justice Department told a federal judge Thursday.
DOJ attorney Kenneth Dintzer didn’t disclose how much Google spends to be the default search engine on most browsers and all US mobile phones, but described the payments as “enormous numbers.”
“Google invests billions in defaults, knowing people won’t change them,” Dintzer told Judge Amit Mehta during a hearing in Washington that marked the first major face-off in the case and drew top DOJ antitrust officials and Nebraska’s attorney general among the spectators. “They are buying default exclusivity because defaults matter a lot.”
Google’s contracts form the basis of the DOJ’s landmark antitrust lawsuit, which alleges the company has sought to maintain its online search monopoly in violation of antitrust laws. State attorneys general are pursuing a parallel antitrust suit against the search giant.
The hearing was the first step in what will be a long, drawn-out process. The trial itself isn’t scheduled to happen until next year, and if Google loses, it will undoubtedly appeal. There also seems no risk of any past revenue being lost, as it is Google rather than Apple accused of wrong-doing. But those fat paychecks may not last for too much longer.