Apple and Google’s Internet Control Handshake

The moment the two men pour romantic red wine by the window, they are also negotiating to renew one of the most lucrative business deals in history: the deal to make the search engine Google the digital choice. one on iPhone and other Apple devices. The deal is worth billions of dollars for each and strengthens both companies’ positions in the technology market.

15 years old agreement

In the US Department of Justice’s lawsuit against Google, the powerful Apple-Google alliance is cited as a prominent example of what prosecutors call illegal behavior aimed at protecting a monopoly and bringing down rivals in the industry. Internet search field.

Apple and Google signed the agreement 15 years ago and rarely mentioned it. However, it underscores the special relationship between two of Silicon Valley’s most valuable businesses, an unexpected handshake between two rivals that, according to authorities, has prevented smaller companies from growing.

Bruce Sewell, Apple’s Chief Legal Officer from 2009 to 2017, revealed: “We have a strange kind of provision in Silicon Valley: co-opetition. You have a bloody competition, but at the same time you need to cooperate.”

Apple and Google always go hand in hand, even when Mr. Cook criticized Internet advertising – Google’s main source of revenue – for engaging in user tracking, and even when the late Apple founder Steve Jobs, once promised “nuclear war” with Google knowing that its “neighbor” is working on an operating system to compete with the iPhone.

With a combined value of more than 3 trillion dollars, Apple and Google face off on many fronts, from smartphones and maps to laptops and app markets. However, they also know how to harmonize for their own benefit. Few deals are as mutually beneficial as the iPhone search business.

According to the US Department of Justice, nearly half of Google search traffic comes from Apple devices. Losing the Apple deal is seen as a “red” prospect inside the search giant. When iPhone users search on Google, they will see ads, which bring in huge revenue for Google. They also find other Google products, such as YouTube.

An unnamed former Google executive shared, losing traffic from Apple would be “terrible” for them.

The US Justice Department wants the court to ban Google from entering into deals like those with Apple because it makes Google, which handles 92% of internet searches globally, more central to people’s online lives. unfair.

Online businesses such as Yelp, Expedia or store owners, news agencies… often complain that Google’s dominance in the search market allows Google to charge advertising fees when people simply search for the business name. , as well as directing users to private products like Google Maps.

Google is estimated to pay Apple $8 to $12 billion a year — up from $1 billion in 2014 — to make it the default search engine on Apple products. This is probably Google’s largest single payment to anyone, and represents between 14% and 21% of Apple’s annual profits. Of course, with such a large amount of money, Apple cannot turn a blind eye.

In fact, Mr. Cook and Mr. Pichai met again in 2018 to discuss how to increase revenue from search. After the meeting, a senior Apple employee wrote to Google, saying, “our vision is that we can work as the same company,” according to the US Justice Department complaint.

Breaking up means billions of dollars in loss for Apple, but a much bigger risk for Google because, apparently, they have no way to recover lost traffic. It would also force Apple to acquire or develop its own search engine. Inside Google, people believe that Apple is one of the few companies that can create a tool worthy of Google. Google is concerned that without this agreement, Apple will make it difficult for iPhone users to use the Google search engine.

Even as the bill with Apple escalates, Google says it’s at the top of the internet search market because users like it, not because it “buys” users. The company argues, the US Justice Department is painting an incomplete picture; and the relationship with Apple is like Coca-Cola paying the supermarket for good shelf space.

Besides, search engines like Microsoft’s Bing also have a revenue-sharing agreement with Apple to make the number two search option on the iPhone. In addition, Apple also allows people to change the default search engine.

The handshake of two opponents

In an interview at the end of 2018 with news site Axios, Apple CEO Tim Cook commented that “their search engine (Google) is the best”. That’s why he still cooperates with Google despite being critical of them. He added that Apple also created ways to make it difficult for Google to collect user data, such as restricting private browsing on Apple’s browser.

The Apple-Goolge deal is not limited to the Safari browser, but also applies to virtually every other search on the device, including Siri, Google’s iPhone app, and the Chrome browser.

Their relationship turned from friend to foe and finally to “competitive cooperation”. In the early years of the business, the two founders of Google – Larry Page and Sergey Brin – considered Mr. Jobs as a mentor, they could walk together long distances to discuss the future of technology.

In 2005, Apple and Google signed a seemingly modest deal to make Google the default search engine on Apple’s Safari browser on Mac computers. Very quickly, Mr. Cook – then Jobs’ right-hand man – saw the lucrative potential of the deal. Google’s payouts are enticing, while Apple just needs to put a search engine people want first.

Apple expands the deal for its next big product, the iPhone. When he introduced the iPhone in 2007, Steve Jobs invited Google CEO Eric Schmidt to participate to explain how Google works on the device. “If we were to merge the two companies, we would call it AppleGoo,” Mr. Schmidt joked.

Then, relations soured when Google quietly developed an operating system to rival the iPhone. In 2010, Apple sued a phone maker that used Android. According to Walter Isaacson, the author of a biography of Steve Jobs, he threatened to “destroy Android” and “will take his last breath if necessary”.

A year later, when Siri launched, Apple chose to use Bing instead of Google. However, the partnership on iPhone between the two “big guys” continues, simply because it’s too lucrative. Apple rearranged the terms and demanded more money from Google.

Around 2017, the deal needs to be renewed. Google faces a challenge, which is that clicks on mobile ads aren’t growing fast enough. Apple is not satisfied with Bing’s performance on Siri. At the same time, Mr. Cook announced a plan to double services revenue to $50 billion by 2020, an ambitious goal that would hardly be realized without money from Google.

In the fall of 2017, Apple announced that Google would be behind Siri’s answers, and Google revealed that the cost of search traffic had increased. The company only gave a brief explanation for the overpayment of hundreds of millions of dollars, “change in cooperation agreement”.