It may be “unofficial”, but apparently almost everyone in the industry knows about the black box that Google has or the money that is spent to help generate its advertising sales. Sources are saying that currently there’s $19 billion inside that box and that every year, they are spending more and more and investors are getting worried. But what they are obsessing about now is that a lot of that money, $7.2 billion to be kind of exact, is going to Apple and other Android manufacturers.
Technically called traffic acquisition costs, this money goes to Apple and other smartphone and tablet manufacturers to ensure that Google, as in the search engine, is the built-in option for web searches in their respective browsers. It also makes sure that the Google box is “front and center” on their devices and also to include or pre-install other Google apps like YouTube and the Chrome browser.
The growing worry among investors though is that every year, that number is growing. For instance, last year, that traffic acquisition cost was at $7.2 billion, which is more than three times the cost back in 2012. Analysts are saying that number has ballooned because of the revised agreement between Google and Apple, which has amounted to $3-$4 billion a year (or even more).
However, the antitrust authorities in Europe are still investigating whether this kind of arrangement is actually an “abuse of power” on Google’s end, even if these manufacturers enter agreements with Google voluntarily. But having this issue dangling over their heads may increase these traffic acquisition costs. We’ll see the effect over the next few years.
VIA: Bloomberg
