Rising costs to remain default search on Apple devices worries Google investors

“There’s a $19 billion black box inside Google,” Shira Ovide reports for Bloomberg “That’s the yearly amount Google pays to companies that help generate its advertising sales, from the websites lined with Google-served ads to Apple and others that plant Google’s search box or apps in prominent spots.”

“Investors are obsessed with this money, called traffic acquisition costs, and they’re particularly worried about the growing slice of those payments going to Apple and Google’s Android allies,” Ovide reports. “That chunk of fees now amounts to 11 percent of revenue for Google’s internet properties. The figure was 7 percent in 2012.”

“The worry is the traffic toll will keep climbing and squeeze the plump Google profit margins investors love,” Ovide reports. “The company pays Apple to make Google the built-in option for web searches on Apple’s Safari browsers for Mac computers, iPhones and other places… Details of these financial arrangements are secret, but analysts think that the biggest culprit in the recent cost uptick is a revised agreement Google struck with Apple a couple of years ago. Analysts think this contract costs Google $3 billion to $4 billion a year, or perhaps much more.”

Read more in the full article here.

MacDailyNews Take: Because iOS users are worth far more than Android settlers.

“All men are created equal.”

Well, not when it comes to users of smartphones and tablets…

The bottom line: Those who settle for Android devices are not equal to iOS users. The fact is that iOS users are worth significantly more than Android settlers to developers, advertisers, third-party accessory makers (speakers, cases, chargers, cables, etc.), vehicle makers, musicians, TV show producers, movie producers, book authors, carriers, retailers, podcasters… The list goes on and on.

The quality of the customer matters. A lot.

Facile “analyses” that look only at market (unit) share, equating one Android settler to one iOS user, make a fatal error by incorrectly equating users of each platform one-to-one.

When it comes to mobile operating systems, all users are simply not equal.SteveJack, MacDailyNews, November 15, 2014

Android is pushed to users who are, in general:

a) confused about why they should be choosing an iPhone over an inferior knockoff and therefore might be less prone to understand/explore their devices’ capabilities or trust their devices with credit card info for shopping; and/or
b) enticed with “Buy One Get One Free,” “Buy One, Get Two or More Free,” or similar ($100 Gift Cards with Purchase) offers.

Neither type of customer is the cream of the crop when it comes to successful engagement or coveted demographics; closer to the bottom of the barrel than the top, in fact. Android can be widespread and still demographically inferior precisely because of the way in which and to whom Android devices are marketed. Unending BOGO promos attract a seemingly unending stream of cheapskate freetards just as inane, pointless TV commercials about robots or blasting holes in concrete walls attract meatheads and dullards, not exactly the best demographics unless you’re peddling muscle building powders or grease monkey overalls.

Google made a crucial mistake: They gave away Android to “partners” who pushed and continue to push the product into the hands of the exact opposite type of user that Google needs for Android to truly thrive. Hence, Android is a backwater of second-rate, or worse, app versions that are only downloaded when free or ad-supported – but the Android user is notoriously cheap, so the ads don’t sell for much because they don’t work very well. You’d have guessed that Google would have understood this, but you’d have guessed wrong.

Google built a platform that depends heavily on advertising support, but sold it to the very type of customer who’s the least likely to patronize ads.

iOS users are the ones who buy apps, so developers focus on iOS users. iOS users buy products, so accessory makers focus on iOS users. iOS users have money and the proven will to spend it, so vehicle makers focus on iOS users. Etcetera. Android can have the Hee Haw demographic. Apple doesn’t want it or need it; it’s far more trouble than it’s worth.MacDailyNews, November 26, 2012

SEE ALSO:
Bernstein: Google to pay Apple $3 billion this year to remain the default search engine on iPhones and iPads – August 14, 2017
Higher income U.S. states use Apple iPhones; lower income states use Samsung Galaxy phones – September 27, 2016
iOS users are worth 10X more than those who settle for Android – July 27, 2016
Apple’s App Store revenue nearly double that of Google’s Android – April 20, 2016
Poor man’s iPhone: Android on the decline – February 26, 2015
Study: iPhone users are smarter and richer than those who settle for Android phones – January 22, 2015
Why Android users can’t have the nicest things – January 5, 2015
iPhone users earn significantly more than those who settle for Android phones – October 8, 2014
Yet more proof that Android is for poor people – June 27, 2014
More proof that Android is for poor people – May 13, 2014
Android users poorer, shorter, unhealthier, less educated, far less charitable than Apple iPhone users – November 13, 2013
IDC data shows two thirds of Android’s 81% smartphone share are cheap junk phones – November 13, 2013
CIRP: Apple iPhone users are younger, richer, and better educated than those who settle for Samsung knockoff phones – August 19, 2013
iPhone users smarter, richer than Android phone users – August 16, 2011
Study: Apple iPhone users richer, younger, more productive than other so-called ‘smartphone’ users – June 12, 2009

[Thanks to MacDailyNews Readers “Fred Mertz” and “Dan K.” for the heads up.]

22 Comments

      1. Condescension aside, demographics is an overvalued aspect of marketing and no class is needed to understand the creepy behavior that lazy marketers use to justify their existence and overly generous salaries.

            1. Sticking to the topic of “Technological Racism” (notice the descriptor) demographics are being used as an excuse not to serve a segment of the market, the “racism” part comes from the self justification of not doing so.

              Taken to the broader context of racism, without the descriptor, it’s why some neighborhood schools don’t necessarily get the best of publicly funded resources. For one. Then there’s healthcare. Then there’s how the Police protect. You know… areas where there aren’t first world problems. Demographics!

            2. Thanks for proving my point. You are defiantly a racist and think whites and superior to other races. As a minority I don’t need people like you trying to speak for people like me. Im not a victim you are trying to make me one. STAHP!

              I didn’t see anything about race in the article yet first place you went to was race. You are making tons of assumptions. All of those examples you gave are not race specific but in your racist thinking world it is.

  1. Wonder what would happen to Siri if Google decides not to ‘renew’. Would Apple change Siri’s search backend back to Bing? Would it also result in a drop in APPL due to the ‘loss’ of $3-$4B in revenue while raising GOOG for increasing profits due to not paying Apple? It may actually show how much Apple is actually dependent on Google for a change.

    1. Oh yeah, how did it turn out when when google refused to update google maps on iOS? Oh yeah, I remember now, we got Apple maps, which I and whole load of people are very very happy with, even if some would disingenuously have you believe otherwise.

      This is what will happen…..

      Apple will release Apple Search. People will try to kill it in the press by saying things like …….well the same shit they said about Apple Maps. They will fail and Apple Search will be used by most people with an Apple device. I would love that to happen.

      1. That would be interesting to see. If anything Google has patents on its Search technologies (most likely not FRAND) so it may be a rockier road than Maps for Apple should they try developing their own Search. Especially if they go ‘cold turkey’ on using Google Search for the backend in all their products while prevent users from selecting their ‘preferred’ search whatever it may be. In the meantime Siri may ‘feel’ even more lobotimized than it is at present.

    2. I could envisage a scenario where Apple could set Duck Duck Go as the default search engine, even if DDG didn’t pay a fee.

      3 billion isn’t a huge amount of money for Apple to turn away and DDG’s principles regarding privacy make it a much better fit with Apple. It could be worth 3 billion to Apple for Google to face some serious competition in a similar fashion to how TSMC has benefitted from Apple’s support and can now offer a real alternative to Samsung’s chip fabrication services.

  2. Much depends on whether Google sees this payment as a way of attracting clicks from IOS users, or as a way to stop those clicks coming from Google’s rivals instead.

    Obviously if Google ceased to be Apple’s default search engine, they could save a few billion and would also lose that revenue, but the most dangerous aspect for Google is that whichever rival became Apple’s default would instead gain that traffic instead.

    It’s a bit like an insurance policy, or even protection racket. They could live to regret saying “no”.

    1. I think the payment is more of a relic from when there were a lot more Search competitors that were ‘close’ to Google’s level. At the time payments began it may have been as you said, like an insurance policy, or even protection racket.

      With Apple deciding recently to make Google Search Siri’s backend Search away from Bing with no prompting may indicate that even Apple believes Google to be the best in class for Search.

      1. I don’t think it’s a relic at all. Rumours suggest that Google used to pay around a billion dollars per year and it’s now more like three billion. That very strongly suggests to me that Google think that they’re getting something valuable in exchange for that huge payment and Apple knows the value of that arrangement too.

        1. I can agree with your assessment that Google thinks it is getting something valuable as the ‘default’. But like I mentioned the reason for continuing payment where there were strong competitors is mostly gone. This may give leverage to Google to negotiate lower payments or simply stop altogether. Apple might then have to decide whether to continue dependence on Google Search in the backend. In addition, similar to MS in the EU, they may be required to provide the option to the user to select a Search Engine on first use of any Applications dependent on a Search Engine. If that happens users accustomed to Google may select Google Search over the other choices DDG, Bing, etc.

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