Google and Apple: Last week, we published a piece about Yahoo turning to Google Inc (NASDAQ:GOOG) for help. Today, we are going to take a closer look at a partnership between Apple Inc. (NASDAQ:AAPL) and the search engine giant.
According to a Business Insider article, “Apple is getting $1 billion per year from Google to make Google the search default on iOS devices, according to a Morgan Stanley report.”
It is safe to say that Morgan Stanley analyst Scott Devitt feels good about Google Inc (NASDAQ:GOOG) as an investment, as he “put Google on his best ideas list for investments on Friday, in a reported titled The Next Google is Google.”
Here is some more information from the Business Insider article, including Devitt’s thoughts on how Apple Inc. (NASDAQ:AAPL) would approach a deal with Google.
“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.”
While some investors continue to worry about the traffic acquisition cost associated (TAC) with Apple Inc. (NASDAQ:AAPL) devices, this is not something that Devitt believes to be an issue. He doesn’t feel that traffic acquisition costs are going to skyrocket in the future.
“He believes the TAC will only increase at 5% per year, and in terms of Google’s overall TAC, he thinks it’s steady at 30-35%.”
All in all, the article goes on to state that this works out to just around $1 billion per year for Apple with more to come in the future.
Yes, this is a good deal for Apple Inc. (NASDAQ:AAPL) but as the article explains Google Inc (NASDAQ:GOOG) is benefiting as well:
“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.”
What are your thoughts on this partnership?
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DISCLOSURE: I have no positions in any stock mentioned.
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