Search giant Alphabet Inc (NASDAQ: GOOG) pays Apple Inc. (NASDAQ: AAPL) $7 to $8 billion a year so its search platform is made the default iOS search engine and Apple. But this relationship could come to an end soon, according to Bernstein’s Toni Sacconaghi, one of the Street’s most notable Apple analysts.
The Apple – Google relationship
Apple’s relationship with Google is far from a one-way street as Google generates a return from its annual payment to Apple, Sacconaghi explained on CNBC’s “The Exchange.” Specifically, Google generates around $25 billion in search-related revenue from being the default iOS search engine.
The reason why Google feels compelled to pay Apple so much money is to prevent rival search operator Bing, owned by Microsoft, from doing so itself.
While Google is the clear dominant leader in the online search space with an 88.16% market share, Bing holds a 6.51% market share as part of the multi-billion dollar market. So if one day Microsoft decides investing in search is no longer a priority, Apple loses a lot of its leverage against Google.
As such, the possibility of a counter bid from Microsoft is thrown out the window, and Google could renegotiate terms at a fraction of the current $7 to $8 billion, according to the analyst. So Apple would need to find an “inexpensive insurance policy” to keep Google at the table and continue paying billions of dollars.
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What Apple needs to do
Apple doesn’t have a way of monetizing search on its iOS platform since it doesn’t own or operate an engine. As such, Apple may want to consider buying DuckDuckGo, the fourth largest search engine with a market share of 1.35%.
The price tag on a potential deal would be less than $1 billion which is the equivalent of just a few days worth of cash flow. For such a small amount, Apple is essentially sending a message to the other search providers that it can run its own search business if needed.
Popular Apple blog Cult of Mac noted DuckDuckGo and Apple share very similar stances on privacy. Apple believes it is a “fundamental human right” and the company “purposely” designs its products and services to limit the collection of consumer data.
By comparison, Google “pays only lip service to consumer privacy” and built a business specifically around collecting data and selling it to advertisers, the blog added.