Amid broad antitrust scrutiny of giant tech companies, the House Judiciary Antitrust Subcommittee had sent letters in September to a handful of prominent names including Apple (AAPL 0.64%) and Alphabet (GOOG 1.25%) (GOOGL 1.27%). Lawmakers are looking for documentation from Apple surrounding a wide range of topics, including repair policies, data collection, and competition with third-party apps, among others.
Apple has now responded to the correspondence, cleverly dodging some competitively sensitive questions in the process.
Image source: Apple.
Skirting the subject
The committee asked for a detailed breakdown of how much Apple has received from Google each year since 2009 for the privilege of being the default search engine in Safari.
The terms of that lucrative partnership have long been shrouded in secrecy. Goldman Sachs analyst Rod Hall estimated earlier this year that the Alphabet subsidiary forked over $9.4 billion in traffic acquisition costs (TAC) to Apple in 2018. Hall previously said that figure could soar to $12 billion in 2019. That would represent over 25% of Apple's entire services business, which generated $46.3 billion in revenue in fiscal 2019.
Apple completely ignored the question, declining to provide the requested summary. Instead, the Mac maker gave a generic response and merely noted that consumers have various ways to conduct web searches:
Apple's search agreement with Google generates revenue based on referral traffic through the URL/search box on Apple's Safari browser. Although Google search is set as the default, this can be changed in settings on iPhone to another search engine, such as Yahoo!, Microsoft Bing and DuckDuckGo. Consumers may also conduct searches on search apps available through the App Store, searches performed on the web (through the search engine's web portal), or through virtual assistants like Siri, Cortana or Alexa that are available to users on our platform.
The Cupertino tech juggernaut's omission is as frustrating as it is expected. The sheer size of Apple's referral relationship with Google has grown massively over the years -- other analysts have estimated that Google paid Apple $1 billion in 2014 and $3 billion in 2017 -- and the partnership may very well be the most important growth driver for Apple's services segment. Given the highly sensitive nature of the terms, it's not all that surprising that Apple dodged the question.
Win-win
It's also getting expensive for Google, which saw total TAC jump 22% in the third quarter to $3.9 billion. The good news for the search leader is that it's able to monetize that traffic well -- TAC represented a smaller percentage of total ad revenue, despite the absolute increase. In other words, the partnership is a win-win for both companies.
"The Sites TAC rate increased year over year, primarily due to the impact of the ongoing shift to mobile, which carries higher TAC, partially offset by the growth in TAC-free Sites revenues, primarily from YouTube," Alphabet CFO Ruth Porat said on the earnings call last month.
