The $1 Billion Search Question
"The Safari platform is basically one of the premier search deals in the world, if not the premier search deal in the world."
That was Yahoo CEO Marissa Mayer a year ago, not even trying to hide how much she wanted her company to make a home for itself in the world's most valuable piece of mobile real estate.
See that tiny search bar at the top when you surf the Web on an iPhone or iPad? Most people probably never think about that spot in Apple’s Safari browser, but for years Google has had the pole position to stick its Web search results there -- and more important, the right to tuck in the related advertisements that Google sells for bridal gowns, Hawaiian hotels and much, much more.
And for years, Google has paid Apple for the privilege of hanging out in its mobile devices. So what is the rent for the most valuable piece of mobile real estate in the world ? It was roughly $1 billion in 2014, according to numbers that dribbled out this month in a lawsuit involving Google and reported by my Bloomberg colleagues Joel Rosenblatt and Adam Satariano.
Google and Apple have closely guarded their financial arrangements, and the $1 billion number was mentioned in court by an attorney for Oracle, which is locked in a long-running lawsuit with Google. The number could be off by a little, or by a lot. It was unclear, for example, whether the $1 billion consisted of ad revenue Google shares with Apple or whether the figure was a different element of their financial arrangement.
But let's assume Google paid Apple $1 billion or more for the "premier search deal in the world." That would be roughly what Apple racked up in sales in about 48 hours in fiscal 2014. Safari accounts for about 40 percent of Web browser use on smartphones and tablets, according to NetMarketShare, yet $1 billion was less than 2 percent of Google's net revenue in 2014. That's pretty affordable for the world's best piece of mobile real estate. It's practically rent control.
No wonder, then, that Mayer and her (sometime) friends at Microsoft’s Bing have been eager to dislodge Google from its spot as the built-in search provider for Apple’s mobile devices.
It says something about the secrecy surrounding this arrangement that Wall Street analysts have been all over the map about whether Google would lose out on billions of dollars each year -- or actually gain billions of dollars -- if it loses its spot on Apple devices. Some have said that Google could actually make more money if the Apple deal ends because it could stop writing checks to the company and people would find their way to Google anyway.
Google's mobile focus doesn't stop at Apple, of course. The company said last year that there were more Web searches on mobile devices than on computers in 10 countries, including the U.S. The majority of Google's U.S. net advertising sales are expected to come from mobile this year, according to estimates from research firm eMarketer.
The odd thing, though, is as mobile grows in importance for Google and other technology companies, Apple’s Web search real estate may be getting less valuable over time. That's because of shifting habits on smartphones and because Apple has started to let iPhone and iPad owners find what they’re looking for without touching Google’s digital shores.
On some searches in the iPhone's Web browser -- try "Uggs," for example -- a "suggested website" will pop before you finish typing, courtesy of Apple, not Google's search engine. Microsoft’s Bing search engine also became one of the information sources for Siri a couple of years ago. People on smartphones spend a majority of their time using apps, again without needing to search the Web.
All of this digital surfing bypasses Google and its ubiquitous search engine. It’s googling without Google. The more these habits continue -- and the more Apple gives people ways to skip Google -- that could quickly turn $1 billion in rent from a steal to a rip-off for Google.
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