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Google Paying Apple $3.8 Billion For a Simple Default Setting

Apple who rake in billions flogging iPhones is also raking in an estimated $3.8 billion from arch-rival Google.

For every search click from an Apple device Google is raking in billions in advertising and search revenue. According to Bernstein analyst Toni Sacconaghi, $3 billion is what Google will pay to Apple for the current fiscal year ending September.

That money is what parent company Alphabet terms as “traffic acquisition costs” paid in exchange for Apple making Google’s search engine the default on its mobile Internet browser. Such costs have been rising for Google as more of its overall traffic comes from mobile devices.

What’s not known is whether Google is paying Samsung similar amounts or whether a condition of the Android licence is that all roads lead to Google.

Apple’s services revenue for fiscal years ended September.

For Apple, this money equates to a very high-margin revenue stream for its services business, which is on track to generate about $29 billion in revenue this year — up 19% from last year — according to Wall Street’s current consensus.

The rub would be if Google ever decided it no longer needed the arrangement to benefit from search activity on Apple’s devices. Sacconaghi estimates that Apple’s services revenue averages a gross margin of about 65% — well above the corporate average of 39% the Wall Street Journal said.

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