It is no secret that Apple has a significant monetary agreement with Google that allows Google to be the default search engine for Apple's devices. Toni Sacconaghi (financial advisor) claims that Google's payment to Apple for maintaining the status quo could be $15 billion by 2021. This is an increase of $10 billion last year.
First reported by Ped30. Sacconaghi's note estimated that Google's payments could continue to increase on-year and reach $18-20 Billion in 2022. The Bernstein analyst based his numbers on Apple’s public filings and a bottom-up analysis Google's traffic acquisition expenses.
Although the Google-Apple agreement in search and advertising markets has been in effect for more than a decade, Bernstein analysts fear that the agreement may be at risk due to Google's dominance in search engines.
Yahoo and Microsoft are also interested in a deal with Apple in order to replace Google as default search engine for iOS devices. Analysts suggest that Google's large payments to Apple are to make sure Microsoft doesn't outbid them.
Two potential risks exist to GOOG's payments to AAPL. (1) There is a regulatory risk that we believe to be real but it will likely take years; an adverse ruling could have a 4-5% effect on Apples gross profit. (2) If Google decides not to pay Apple for its default search engine, or if they are willing to renegotiate terms to pay less, then this would impact Apples gross profits. In our prior research, we have found that GOOG likely pays to make sure Microsoft doesn't outbid it. It is possible that Google could reconsider its strategy, though, as payments are likely to exceed $18 $20B for FY 22.
The U.S. Justice Department filed an Antitrust Suit against Google last year. It claimed that Google's Mountain View-based company used anticompetitive, exclusionary practices to keep an illegal monopoly in search and advertising markets. Google's deal with Apple, which allows Google to be the default search tool in Apple's Safari browser, and other search tools, is one of the major complaints.
Sacconaghi suggested that Apple purchase a search engine to pressure Google last year. Sacconaghi argued that Apple has no alternatives to Google and its only leverage is a swap with Bing. The analyst warned, however, that such a move could result in regulatory oversight that could block the acquisition and put Apple in a worse situation than before.
After increased activity from Apple's web crawler in 2020, speculation grew that Apple would launch its own search engine. However, the increase was later attributed to Apple's efforts for Spotlight and Siri search results improvements. The rumor, however, has not been confirmed.
