Google Spends More Than $7 Billion To Dominate Your Phones With G-Apps and Search Box

Google search Android

Have you ever given it a thought that how Google apps come pre-installed on your new smartphone? Most of us think that Google owns Android, so these apps are just the part of the package, right? Well, Google shells out a whopping sum of money to keep its services on your phones. The tech giant paid $7.2 billion last year to feature its apps on your phones.

Google pays Android OEMs for features like search bar placement and pre-loaded Google apps like YouTube and Chrome. Not only that, but the company also pays the manufacturers like Apple to be the default option for built-in web search boxes on Safari browser. Google calls this cost “traffic acquisition costs”, and it is increasing every year.

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There is a slew of reasons why this cost is going up every year. To recall, Google is now paying 3x more than what it was paying in 2012 to partners like Apple for search box placement and default access. A fair share of the rising cost also goes to increased ads display on websites via Google Adsense. And besides, smartphone usage has grown drastically since 2012, which means most of the searches are going through phones, so the increased cost makes sense. Many also speculate that the recent deal between Apple and Alphabet is also one of the reasons behind increase expenditure. The deal is estimated to be over $3-$4 billion.

Google shells out more than $19 billion on traffic acquisition annually. All of this money goes for advertisement generation via websites featuring Google Adsense, and the rest goes to mobile partners like Apple and other companies. The rising cost along with EU and US regulations have already got the investors worrying. Google, until now, had avoided major lawsuits beyond €2.4 billion when it was fined by EC earlier this year. However, things are getting tougher as European antitrust authorities are also investigating into the deals made with Android OEMs.

Abuse of power?

These deals with Google provide the manufacturers with the ability to pre-load Google apps on their phones and Google search as default. If the authorities find these agreements to be an abuse of power by Google for establishing dominance over the ecosystem, then Google could face the consequences.

Higher cost and lower profits

Enhanced regulation in the US and Europe can prove to be dangerous for Google as it can lead the OEMs to negotiate agreements with Google and also to walk out of the contracts if needed. On the whole, we can say that Google is in a risky business of maintaining its default appearance of phones. And the cost seems to be going up every year, resulting in lesser profits. Looking at all this, we think Google is doing the right thing by exploring the hardware segment. What do you think?

News Source: Bloomberg

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