Have you ever wondered how much ransom Google is paying Apple in order to remain the default search engine on iPhone? We finally got to know the answer as part of the USA vs. Google antitrust lawsuit. Google didn't disclose this number publicly because it has a lot of implications. First, Microsoft will know what it takes to become the default search engine. Second, shareholders will question how deep a *moat* Google really has if Google is paying too much. Lastly, Apple will be really mad. Apple had $22B of services revenue in Q3 2003 while Google search had $44B of revenue with $12.6B of TAC(traffic acquisition costs). If we know how much Google pays Apple, it’s not hard to approximate how much of Apple’s services revenue is from Google.
Well, Kevin Murphy, a University of Chicago professor, said Google pays Apple 36% of its search advertising revenue during his testimony in Google’s defense at the antitrust trial. Google’s lawyer cringed when Professor Murphy gave his testimony. This number was not supposed to be said out loud. 36% is insanely high. The typical App Store cut is 30% and people already complained that is too much. But Google pays an even higher 36%!!! It appears that Google is paying Apple $10B+ a quarter assuming $30B+ of Google search revenue is from iOS or 80% of Google’s TAC goes to Apple. Google makes about $20B a quarter. It could have been $30B if it didn't have to pay Apple. At the same time, if Google loses its default search engine status on iOS, a majority of Google’s search advertising revenue will be in jeopardy. Google’s *monopoly* is fragile. Professor Murphy has a strong point.