“The licensing fees that Google-parent Alphabet Inc. pays to Apple Inc. to direct traffic to its search business are kept under tight wraps by both companies. But the fees appear to have played a notable role in the iPhone maker’s most recent quarter. In its quarterly filing with the SEC on Wednesday, Apple named licensing as the top contributor to the 31% year-over-year jump in services revenue the company reported for its fiscal second period ended March 31,” Dan Gallagher reports for The Wall Street Journal under the somewhat ominous headline “Apple’s Quiet Boost From Google May Slow.”
“Whether that kind of growth will continue is another question,” Gallagher reports. “Alphabet has told its own investors that it expects growth in the traffic acquisition costs paid to distribution partners — which include Apple — to start slowing this year, at least relative to revenue from this part of the business.”
MacDailyNews Take: “At least relative to revenue.” In other words, Apple’s “problem” is that as Services revenue doubles, triples, and beyond, Google’s $3 billion (or whatever it is) annual payment to remain default search on Apple’s platforms stays pretty much the same, decreasing as a percentage of over all revenue. What a horrific “problem” Apple has on their hands! (dripping with sarcasm)
Gallagher reports, “That could mean limited future upside for Apple from what is a lucrative revenue stream.”
MacDailyNews Take: Yes, Google will continue paying relatively the same amount each year for access to the world’s well-heeled, most desirable customers unless or until Apple demands significantly more or cuts the slavish copiers off.
“Toni Sacconaghi of Bernstein estimates Google paid Apple more than $3 billion for licensing in 2017, which would be about one-third of Google’s distribution traffic acquisition costs for the year,” Gallagher reports. “That would also amount to a little under 10% of Apple’s total service revenue for the period.”
Read more in the full article here.
MacDailyNews Take: Whiff! The WSJ swings and misses!
First of all, we’re talking about 10% of Apple’s total Services revenue. The big “problem” Gallagher tries and fails to gin up is that Google’s annual $3 billion payment will be an even smaller drop in Apple’s Services bucket because Services as a whole is growing so rapidly.
So, yes, Dan, when you take a line item that’s fairly constant and compare it to a business that’s growing like crazy, it will “start slowing at least relative to revenue from this part of the business.” Thanks so much for the brilliant insight.
If this is the best The WSJ can come up with for a negative Apple story, back up the truck!
Rising costs to remain default search on Apple devices worries Google investors – October 10, 2017
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 Reader “Fred Mertz” for the heads up.]