05 Oct

Figures from Goldman Sachs appear to show that, even though Apple may publicly take the moral high ground and criticise digital advertising businesses, it may actually be making $9 billion this year, one-quarter of its estimated total revenue, from a deal with digital advertising giant Google.

Opposition and Irony

Apple has been famously vocal about its high regard for user privacy and its opposition to the idea of harvesting user data to feed online advertising. For example, in a TV interview in April (Recode’s “Revolution” TV special with MSNBC) Apple’s CEO, Tim Cook said that Apple had elected not to “make a ton of money” from customers by not monetizing them, and that “we’re not going to traffic in your personal life”. Also, Apple investors and financial commentators have witnessed what they saw as a transformation of the business that they may have believed was based purely on the products.

It is ironic, therefore, that something that Apple appears to be opposed to is quietly responsible for a large chunk of the company’s growth.

Services Segment

It is true to say that iPhone sales are still the biggest contributor to Apple’s growth, but something called the ‘Services Segment’ is the second biggest contributor to Apple’s revenue growth. This segment includes ‘licensing’ as a sales growth driver in this segment, which actually refers to Apple’s collecting of money from its search contract with Alphabet Inc.’s Google, as well as other sources.

The Google deal means that Google pays Apple $9 billion this year (and an estimated $12 billion next year) to remain the default search engine in iOS devices such as iPhone and iPad. Goldman has been reported as saying that it is likely that this revenue is charged based on the number of searches that users on Apple’s platform originate from Siri or within the Safari browser.

Criticism

The figures from Goldman have attracted some criticism online from investment and tech commentators who have pointed out that, even though Apple appears to be publicly opposed to systems that harvest personal information for advertising purposes, the deal with Google means that it actually makes one-quarter of its services revenue from enabling such a system by Google, while not having to be accountable for the negative aspects of it.

What Does This Mean For Your Business?

Advertising is a necessary part of marketing for many businesses, and tech giants such as Google and Facebook offer advertising services to businesses. In our lives as consumers, however, we have become increasingly worried about our privacy and how our personal data is being used and sometimes shared, and there is no doubt that data harvesting is used to target advertising. The fact that Apple appeared to be publicly against the idea of harvesting of data for advertising, and yet makes billions per year by enabling Google to do just that while being able to distance itself from any flack about it (until now) is likely to be another blemish on the reputation of the trillion dollar company.

Some investors and investment commentators may also find themselves believing a little less in the idea of Apple’s transformation and success being purely down to its products and may be surprised that such a large chunk of Apple’s revenue simply comes from a browser deal with Google.