Why Google Pays Apple $1 Billion a Year
Google is expected to pay an estimated $1 billion to Apple in 2014 to keep its search engine as the default on iOS devices because, well, Google makes a huge portion of its mobile revenue from iPhones and iPads — enough to make rivalries disappear. Last year, Google paid $417 million for the exclusive search rights, up from just $82 million in 2009. Given the monster growth track of Apple devices, as well as the per-device rate Apple charges Google for prime search real estate, the exclusivity cost is expected to double over the next two years. And even though it seems a strange partnership for the sometimes rivals — they're competing over phone software, and Google's results show up in Apple's competing browser — the iPhone and iPad business is lucrative enough for Google's search advertising business that it might even be considered a steal.
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As of March, something like 80 percent of Google's phone-search profits came from Apple, with only 20 percent coming from Android devices, per calculations from Apple Insider's Daniel Eran Digler. Google doesn't break down these numbers by device type, but in a court filling Google said it made $550 million in Android search revenues from 2008-2011. In 2011 alone, Google reported a $1 billion run rate for mobile revenues, which includes search revenues on Android and iOS, as well as sales from its Google Play app store. In 2011, Google made a little more than $100,000 from app sales, as you can see here:
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Since Google only made $550 million over three years on Android search ads, that means a lot of that $1 billion run rate in 2011 had to have come from Apple search ad revenue.
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Going forward, these mobile revenues should prove an even more important source of Google dollars. For five quarters in a row the search giant has seen a decline in cost-per-click revenues, in part because of the shift of people from computer to phones, where ads sell for way cheaper. In an attempt to combat this race to the bottom, Google has introduced a new mobile ad program that consolidates ad campaigns from separate devices and audiences into one package deal. This will likely drive up mobile ad rates, explains The New York Times's Clair Cain Miller, by driving more people into the mobile-ad bidding system.
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There is always a chance that Apple will continue its conquest to create a Google-free iDevice and force out Google search from its default apps, just like it did with Maps. In which case, of course, Google already has an app for that.
