Google Pays Billions To Acquire Traffic

Posted on March 14, 2013

Google Pays Billions To Acquire TrafficAnalysts at Morgan Stanley have predicted that Google will pay close to $6.8 billion a year for the sole purpose of traffic acquisition. It is estimated that it will pay close to $1 billion to Apple in 2014 to be their default search engine on iOS devices including the iPhone and the iPad. Thirty-one percent of its traffic acquisition costs are expected to go to Apple, and it is also estimated that they will pay around $400 million to Mozilla for the same privilege in its popular Firefox web browser, a 33 percent increase from the previous year.

As far as Apple is concerned, they receive $1 billion simply for having popular device, and even if it does pale in comparison to the $13 billion they pulled in last year, its still a nice tidy profit. Previously, analysts assumed that Apple and Google had agreed upon kind of revenue-sharing arrangement, where Apple collects a small percentage of advertising revenue generated by iOS devices, but Scott Devitt, one of the analysts at Morgan Stanley, feels that a revenue sharing plan is too messy. He says that their arrangement is more likely one where Apple is paid a fee per device, which is easier on their accounting and allows them to receive upfront payments.

Google seems to be spending an extremely large amount of money on traffic acquisition, but at the same time they currently control over 95% of the mobile search market, and given the popularity of Android and iOS, $1 billion to ensure their monopoly on this growing market seems cheap. These deals have the effect of shutting out competitors, such as Microsoft’s Bing, which has thus far failed to increase its market share despite evidence that their search service produces better results than Google. It also gives Google access to valuable smartphone and tablet user data it can use to improve its service.

With Google’s revenues hitting an all-time high of $50 billion at the end of 2012 and the cost of traffic acquisition estimated at being a fraction of that, it’s clear that the search giant is going to be around for quite some time.