Report: 75 Percent Of Google’s Mobile Search Revenue Comes From Apple Devices

Somewhat buried in an opinion piece this morning about the future of Android, in the New York Times, was this bombshell:

A recent analysis by Goldman Sachs estimated that Google collected about $11.8 billion on mobile search ads in 2014, with about 75 percent coming from ads on iPhones and iPads.

As with most of these estimates, the precise numbers are probably not entirely correct but directionally accurate. But let’s assume they’re correct for the sake of argument.

Google had just over $59 billion in ad revenues for 2014 based on the company’s 10-K filing. That would mean, if the Goldman estimates are right, that about 20 percent of Google’s revenue is coming from mobile search ads and about $8.8 billion from iOS devices.

In 2013, Morgan Stanley estimated that Google paid Apple over $1 billion annually for the privilege of being the Safari default.

As a post on Apple Insider asserts, the revenue dependence on iOS searchers would make Google potentially very vulnerable if Apple we’re to bounce the company out of the default slot on Safari and/or introduce its own search engine.

Indeed, Apple has been suspected of working on search technology for a long time and the company recently confirmed the existence of a webcrawler. The company said recently that AppleBot is “used by products including Siri and Spotlight Suggestions.”

The Goldman Sachs report suggests that Google will do everything it can to maintain its relationship with Apple. However I had previously speculated that Google and Apple would not come to terms and that Bing would likely move into the default role on Safari.

This was based on the assumption that Google was gambling it would get iPhone and iPad search traffic anyway through other channels or switchers resetting Google as the default in Safari. However if Google is getting nearly $9 of roughly $12 billion in mobile search revenue from Apple usage it probably would be willing to pay more than $1 billion in TAC to protect that revenue stream.

Research firm eMarketer has predicted that spending on mobile SEO and PPC will overtake desktop search marketing spending next year. Much is at stake for Google accordingly.

We don’t know precisely when the Apple-Google default-search deal is up, but various reports have said it’s sometime this year. The Information earlier reported that Microsoft and Yahoo were or are competing for the Safari business and that Apple’s Eddie Cue is supervising the bake-off. Sources reportedly told The Information that Apple’s decision will be based “on the quality of the product as much as the potential money made from search ads.”

The Goldman report shows how big Google’s mobile search business has become and how surprisingly dependent it is on Google’s chief mobile rival.

Postscript: We obtained a copy of the Goldman report from NY Times writer Farhad Manjoo. Here are a few more verbatim excerpts from the document:

• ~50% of this [iOS-related mobile search] revenue, or $4.4bn, is directly related to the Safari deal.
• By analyzing Google’s major distribution deals, we come to a TAC rate of 65% which implies $1.6bn in CY14 net advertising revenue from the Safari deal
• If Google does not renew the Apple deal, we estimate that it could be ~5-10% accretive to earnings if Google is able to recapture 50-70% of revenue that would have fallen under the Safari deal.