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Comment by herunan | Hacker News Reader

I knew Google paid Apple for preferential treatment on search, but enough to account 14-21% of Apple’s profit? Wow.

I think this is a time to use revenue instead of profits. Apple has many sources of money, all of which contributes to profits.

$260 Billion in revenue in 2019, so that's ~4% of Apple's revenue.

why? im guessing this decision costs them close to 0 dollars to implement so the full payment goes towards their profits?

That's not how it works. If not for all the investment Apple did on their platform, it wouldn't be worth $8-12B from Google in the first place.

It is when it's already a sunk cost that would've already been invested even without the search deal, resulting in the incremental cost to add a Google default next to zero.

There's no reason for this recurring payment to be compared against revenue when it's essentially pure-profit contribution that cost Apple close to 0 marginal cost to implement.

As tptacek pointed out, it did not cost Apple close to 0 marginal cost to implement.

Apple spent a lot and continues to spend a lot to retain its enormous share of wealthy users, which is why Google pays as much as it does to be default. Exactly how much to attribute is probably impossible to calculate, but certainly not close enough to zero to call it pure profit.

It cost Mozilla 0 marginal costs to make google their default search engine, yet it was their primary source of revenue and funded their organisation almost entirely for many years. That certainly didn't make all their google search bar revenue profit. Also as Apple sell more devices they can and do charge Google more, so making better phones and marketing them well, both of which incur costs, earns more search bar revenue. That's direct causal line between costs and that revenue. The fact they also have other revenue doesn't change that. Whole companies have failed because the owners bought that fallacy and fundamentally misunderstood how their own business worked.

Were we to think about the pro forma AAPL sans the payments, it’d come out of revenue, and then we’d pull 100% of it out of profit, and probably add a bit more of a hit for the inevitable R&D done to start working on their own search.

That doesn't make any sense. Does it mean the profit from the deal should be written off as business expenses?

> why? im guessing this decision costs them close to 0 dollars to implement so the full payment goes towards their profits?

Profits are "Revenue - Recurring Costs - One-time-Costs". Since this decision costs them $0, why do you want to put costs into the denominator?

~4% == $10 Billion / Revenue

Or:

~20% == $10 Billion / (Revenue - RecurringCosts - OneTimeCosts).

Which number looks more correct to you? I guess it depends on how you use the number, but from my perspective, the lack of costs means that its more logical to compare it to Revenue as a whole.

Note: Operating Profit is "Revenue-RecurringCosts" (without one-time-costs associated). Operating Profit would be "more correct" if this were a hypothetical decision with recurring costs. (The one-time-costs would just muddle the discussion).

Why not say that money goes towards paying employees, or server farm costs? You can’t say that this revenue here goes to this cost, or that revenue there goes to another cost, and some other revenue is special because that’s the profit.

Apple made this deal with Google before the iPhone was even launched and arguably among the first revenue sources they ever had, and the revenue from it has risen as the value of that search bar has risen, along with their other revenue. It’s plausible to argue it’s enabled them to invest more in developing the phones and iOS, so without it their expenses might have been lower.

Another thing to consider is if Apple didn’t sell this deal to Google, they’d probably be making a deal with Microsoft to replace it with Bing, or Yandex in Russia, or whatever. It doesn’t only have value to Google, they might make less but still it would be a lot, so really the revenue that’s uniquely ‘Googly’ from an Apple perspective is just the delta of the extra they make from Google.

>Why not say that money goes towards paying employees, or server farm costs?

Because they don't have to pay (almost) any employees or server farms to make Google the default.

Was the same true when the Google deal money was the only money they had made, as I pointed out, before they sold a single iPhone? Was it pure profit then?

We have an exact counter example. When Mozilla was almost entirely dependent on Google search bar revenue would you say the same thing of them? By definition it’s all profit because it cost nothing to make Google the default ... except most of it went to pay operational costs because their other revenue was very small. Even supposing they then get more other revenue from other sources, you can’t suddenly say search bar revenue has switched from going here to going there. It doesn’t make any sense.

Also the Google revenue to Apple has scaled with devices sold, sell no devices make no Google money. Increase sales and you can demand more from google. It’s all predicated on making and selling devices, which takes people.

> this is a time to use revenue instead of profits

Totally the opposite. Capital projects are greenlit on profits. The profits Google delivers to Apple are a better argument against it building its own search engine than the revenues.

AFAIK there is no actual public info on what the dollar amount is (I certainly don't know what it is).

The house report says they don't know how much Google pays and they pulled the numbers from a story on the web that was guessing.

So as of right now no one knows what the revenue or profit is.

we do know the number was 1B in 2014 when oracle blurted it out in court.

We know Mozilla's numbers for a similar type of deal from that era and now. We also how market share and absolute devices have trended from 2014 to now.

Apple' s dominance in mobile and mobile as platform having a larger impact on search then web.

Putting it altogether 8-12B is a fair estimate.

To see it another way, if google is ready to pay mozilla $500 M / year with a browser in single digit market share and predominant presence only in web, 20x to apple is pretty easy

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