Why Google Pays Apple Billions of Dollars Every Year

Find out why Google is willing to invest billions in maintaining its position as Apple's default search engine.

By Abhishek Chandel 06 Nov 2023 in Social

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Why Google Pays Apple Billions of Dollars Every Year

Google and Apple are titans of technology, yet they share an unlikely multi-billion dollar partnership. For over 18 years, Google has paid Apple billions annually to be the default search engine on iPhones, iPads, and Macs. This deal originated when Google wanted to dominate mobile search, but has grown into a mutually beneficial arrangement between the rivals. But why is Google willing to funnel so much money to Apple each year?

Background on the Google-Apple Business Relationship

Google and Apple made a deal in 2005 for Google to be the preset search engine on Apple's Safari browser and other products. At the time, Google was focused on cementing its dominance in the search market, especially in mobile as more users switched to smartphones.

Apple benefited by locking in billions in pure profit from Google's payments. Although the two companies compete in other areas like smartphones, laptops, and smart home speakers, they realized there was big money to be made from this partnership.

The multi-billion dollar annual payments fluctuate based on the amount of Google search traffic generated by Apple devices. As Apple sells more iPhones and iPads, Google pays more to be the default search option.

Reasons Why Google Pays So Much to Apple

So why is Google willing to fork over billions of dollars each year to Apple? There are several compelling strategic reasons that make the deal worthwhile:

1. Huge Reach to Apple's Vast and Loyal Customer Base

The partnership enables Google to put its search engine directly in front of Apple's enormous built-in user base. Apple has over 1 billion iPhone, iPad, and Mac users worldwide. These customers tend to be loyal, have higher than average disposable incomes, and are accustomed to using Apple services. This makes them prime targets for Google's search ads. Even if only a fraction of Apple users click on the ads, it translates to massive revenue for Google.

2. Locks Out Competition from Microsoft, Yahoo, DuckDuckGo

By paying top dollar to Apple, Google ensures that its biggest search competitors like Microsoft Bing, Yahoo, DuckDuckGo, and others are blocked from being the default option on iOS and Mac devices. Google fights fiercely to maintain its 90% market share in search, and the Apple deal is a strategic barrier to rivals. Even if competitors offer Apple a better revenue share, Google can simply pay more. This lets Google keep its search dominance.

3. Provides Valuable User Data and Insights

The Apple partnership allows Google to gain valuable aggregate data on the search habits, preferences, and demographics of Apple's user base. While Apple provides limited anonymized data, the sheer sample size gives Google useful insights to improve its search algorithms, predictive typing, voice recognition, ads targeting, and other AI-driven products. This data helps Google serve users faster, more accurate search results.

4. Strategic Synergy Between the Tech Giants

Although rivals in the smartphone and computer markets, Google and Apple benefit tremendously from each other's success. The rising tide of iPhone sales lifts Google's mobile search revenue. And iOS users have come to depend on Google's apps like Maps, YouTube, Gmail, and Chrome. The companies have a complex frenemy relationship but the search deal reflects the synergies between the tech giants.

5. Cementing Mobile Search Dominance for the Future

With mobile internet usage exploding globally, Google is investing heavily to remain the dominant search player on smartphones and tablets. Partnering with Apple for the next 5+ years gives Google unmatched scale and confidence in its mobile search future. The mobile search ad revenue potential is enormous, so Google is willing to pay generously to be the preset choice on iOS, the world's second-largest mobile operating system. This ensures Google remains king of mobile search.

Critics of the Lucrative Deal

While it's mutually beneficial, the exclusive Google-Apple deal does have some critics:

Some argue it stifles competition and innovation from smaller search startups like DuckDuckGo.
They claim Apple should reinvest the billions it gets from Google into improving its products, rather than padding profits.
Others see the exclusive deal as anti-competitive behavior that locks Google in as the only search choice on iOS devices.

The Future of the Partnership

It's unlikely the Google-Apple deal will change anytime soon. The contract gets renegotiated every few years and the amounts tend to increase over time. As mobile search gets more prominent globally, Google seems happy to pay top dollar to remain the search leader on iPhones and iPads.

While unconventional, the multibillion dollar annual payments exemplify the strange bedfellows and frenemies relationship between Google and Apple. Their deal reflects the symbiotic relationship between the two tech titans as they continue dominating their respective markets worldwide.

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