Search giant Google pays Apple to be the default search engine on iPhones, and the deal between the two technology companies is worth billions. Last year, Google reportedly paid as much as $9.46 billion as ‘traffic acquisition costs’ or TAC.
This massive value has been revealed by Goldman Sachs analyst Rod Hall, who cited Google’s financial results as he gave out the number. However, that’s not all. The deal may even be worth more next year if estimates of Goldman is accurate. According to estimates, Google may have to pay $12.2 billion to Apple next year, and $15.6 billion in 2021. This may happen in spite of the fact that TAC growth is slowing, according to Hall.
He further said that the Cupertino-based technology giant has recently started focussing a lot more on its ‘services’ revenue stream than it earlier did and its composition is weighted towards things like TAC, the 15%-30% fee that Apple collects from app developers on App Store. Services that have a recurring monthly subscription like Apple Music are not a part of this.
The note given by the investment bank said, “Combining our TAC work with App Store data from Sensor Tower we conclude that TAC and Apple’s share of app store downloads represented 51% of Services revenues in 2018 and an even larger 70% of Services gross profits.”
In Apple’s fiscal 2018, the company earned a total of $37 billion by its services business. And investors are hoping that it will grow and start contributing for a majority of Apple’s total revenue growth.
However, to hit this target, Apple will need to launch a new content bundle, according to Hall. He even said that Apple may have to bundle a subscription to online video, magazines, and even online storage.
Coming back to the note shared by Goldman Sachs, it further said, “We expect Apple to launch an ‘Apple Prime’ type package in late March through the profitability and attractiveness of this are key to better Services growth and profits than we currently model.”
To recall, it was reported in 2017 that Google paid Apple $3 billion per year in TAC costs. Prior to that in 2014, it was reported that Google paid Apple $1 billion. This latter is a sure-shot number as it was found in court filings.