Apple Reportedly Demands $9B From Google for iOS Default Search

Defaults are powerful. Psychological research has repeatedly demonstrated that most people don’t change defaults, opting instead to use systems and settings the way they are configured out-of-the-box. That’s why so many battles have been fought over questions like what the default browser in Windows should be, and it’s why Apple can get away with charging Google an awful lot of money to be the default search provider on iOS.

Goldman Sachs analyst Rod Hall believes Apple is charging Google $9B for search defaults in 2018, up from $4B in 2017 and $1B back in 2014, according to Business Insider. Goldman believes Apple earns more revenue on those payments than they do on either iCloud or Apple Music.

“We believe this revenue is charged ratably based on the number of searches that users on Apple’s platform originate from Siri or within the Safari browser,” Hall wrote. “We believe Apple is one of the biggest channels of traffic acquisition for Google.”

Apple’s accountants like to talk about the company’s earnings from its “Services” division as being driven by Apple Music, iCloud, or the App Store more generally. But Hall and his fellow analysts aren’t at all sure that’s actually the case. Business Insider notes that Goldman believes 24 percent of Apple’s services revenue is driven by TAC (Traffic Acquisition Fees). AppleCare supposedly accounts for another 17 percent.

We’ve noted how much more expensive device repairs on Apple devices have gotten if you don’t buy AppleCare and work directly with the company on the repairs. While Apple can’t make it literally illegal for third parties to repair devices, the company has taken multiple steps to make it as inconvenient as possible, including rolling out “updates” intended to brick devices if they’d previously been repaired by third parties in the name of device security.

“Services” as a group of products accounted for 13 percent of Apple’s revenue in 2017. With smartphone sales flattening out and iPad sales down sharply since the product family debuted, Apple has looked to increase revenue without shipping higher product volumes. That’s led to sharp increases in iPhone prices on the consumer side and certainly hasn’t given the company any incentive to keep its phone repair costs low. With the cancellation of the iPhone SE and the introduction of the significantly more-expensive iPhone XS, XS Max, and XR, Apple will continue to drive its earnings per quarter skyward, even if its shipped volume of devices stays the same or decreases. An extra $4B worth of Services revenue courtesy of Google’s renegotiated contract won’t hurt, either.

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