a través de Traffic Acquisition Costs | Asymco

In June of this year Apple reported that it had paid a total of $100 billion to developers. That is the 18th such figure given in the 10 year history of App Store, making the progress of payments and hence revenue and spending easily trackable.

The other regularly reported figure is the business segment revenue where App sales are currently allocated. Now called “Services” this omnibus segment includes many other sources of revenues such as:

  • Digital Content (Books, Music downloads, Video downloads–including TV shows and movies and movie rentals.)
  • AppleCare, Apple’s extended warranty service.
  • Apple Pay, transaction fees
  • Apple Pro Apps, including Final Cut, Logic Pro, Motion, Aperture
  • Licensing including “Made for iPhone/iPad”
  • One-time settlements of various lawsuits.
  • Other Services revenues which include
    • Apple iCloud-related services
    • Music Match
    • Music subscriptions
    • Other third party subscriptions (commissions)
    • Third party licenses

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It’s known that Google pays Apple for the default placement of Google search within Safari on iOS and Mac OS. That payment is registered by Google as a “Traffic Acquisition Cost” or TAC. TAC is essentially payment for distribution where what is granted by the distributor is access to queries (traffic.) This way Apple acts as distributor for Google. So, for that matter, does Firefox which also receives TAC payments.

What is peculiar is that the amount of TAC paid by Google to Apple is becoming staggering.

A few years ago Google was paying over 20% of its revenues as TAC. Recently that ratio rose to 23%. Bernstein analyst Toni Sacconaghi estimated that Google paid Apple $1 billion in 2014 as TAC and that payments to Apple were about $3 billion in 2017. Now Goldman Sachs analyst Rod Hall estimates Google could pay Apple $9 billion in 2018, and $12 billion in 2019.

This is starting to look interesting but is it believable?

My own estimate of Apple’s Other Services (which includes TAC revenues) is a run rate of $15 billion for calendar 2018. This makes $9 billion (60%) from Google quite challenging but not impossible. The remaining $6 billion needs to account for Apple’s own cloud and subscription service revenues.

Does this make sense given Google’s spending? TAC payments to distribution partners in Q2 were $3 billion. The $9 billion/yr assumption implies a $2.25B/quarter payment to Apple. That would be 75% of Google’s distribution costs. That also sounds reasonable given the high utilization of iOS relative to any other platform.

 

The remarkable story here is how Apple has come to be such a good partner. Both Microsoft and Google now distribute a significant portion of their products through Apple. Apple is also a partner for enterprises such as Salesforce, IBM, and Cisco. In many ways Apple is the quintessential platform company: providing a collaborative environment for competitors as much as for agnostic third parties.