Jay Yarow pointed out that a recent report from Analyst Scott Devitt at Morgan Stanley, indicates that Google is set to pay Apple about $1bn a year to become the default search engine for iOS devices.
[quote] The gist of his bullishness: he believes Google’s search business has room for revenue growth and YouTube has an opportunity to generate billions in more sales.
As a part of his look at Google, he dug into the mobile business. He has an estimate of how much Google pays Apple for the right to be the default search engine on iOS devices like the iPhone, iPad, and iPod Touch.
In the past, some analysts have estimated that Apple has a revenue sharing deal with Google on iOS search. So that for every one dollar of search advertising collected on an iOS gadget, Apple gets 75 cents.
Devitt thinks Apple wouldn’t do a revenue sharing deal with Google because it’s too messy. He thinks Apple would do a fee per device because it’s easier for accounting and it gives Apple upfront payments. It’s also a hedge against users going to Google.com and searching from there instead of the default search box on iOS.[/quote]
According to Yarow’s report, Devitt believes that Google will pay Apple a little under $1 billion this year, steadily rising over the years.
“For Apple, $1 billion in pure profit is nice, but it’s not much considering the company made $13 billion in profits last quarter, Yarow reports. “For Google, it’s a pretty good deal. Devitt estimates Google controls 95% of the mobile search market. When you consider that Apple and Android are swallowing the mobile market, paying ~$1 billion a year for a monopoly on the most lucrative online business in the world is a no-brainer.”