Google to pay Apple $3 bn to remain iOS default search engine

Google will pay Apple nearly $3 billion this year to remain as the default search engine on iOS devices, according to US-based research and brokerage firm Bernstein.

According to a note from the research and brokerage firm to investors on Monday, Google has increased the amount from $1 billion three years ago to $3 billion this year, and Google's licensing fees make up a large bulk of Apple's services business.

While Apple refuses to divulge what exactly it is paid by Google, the earlier figure of $1 billion was derived as a percentage of revenue generated by Google through iPhone and iPad users - as much as 34 per cent, according to some reports.

"Court documents indicate that Google paid Apple $1B in 2014, and we estimate that total Google payments to Apple in FY 17 may approach $3B," Bernstein analyst A M Sacconaghi Jr said.

"Given that Google payments are nearly all profit for Apple, Google alone may account for five per cent of Apple's total operating profits this year, and may account for 25 per cent of total company OP growth over the last two years," he added.

Apple's iOS devices contribute about 50 per cent to Google's mobile search revenue, Sacconaghi noted.

According to an AOL report, Apple has been drawing investor focus to its "Services" line item, which could amount to as much as 13 per cent of Apple's total revenue this year. When Apple executives talk about Services, they like to focus on the fee Apple collects from software sold on the App Store, or the money they make through subscriptions like Apple Music.

But Bernstein dug through Apple's filings and found that licensing revenues, like those Google pays Apple, is actually the biggest or second biggest contributor to services growth.

Bernstein points out that the whatever money Google pays Apple is likely all profit - a pretty great deal for Apple and a strong sign of the importance of the iPhone ecosystem.

And unless Google changes the deal, Apple will collect larger and larger checks every year as its installed base grows.

Bernstein analysts even see a possibility that Apple could double down on licensing revenue by selling off app placement on the iPhone, which could be profitable "particularly if Apple offered to make them default applications within iOS – think Uber (vs. Lyft) or Amazon (vs Jet) or Facebook (vs. Snapchat/Twitter) or Google Maps (vs Mapquest) or WeChat (vs Line) or Netflix (vs Hulu)," Sacconaghi wrote.