Google may pay up to $3.5 billion to Samsung Electronics this year as part of their contract that requires the Seoul-based original equipment manufacturer (OEM) to pre-install the Google Android app on its smartphone offerings, South Korean newspaper JoongAng Ilbo wrote on Wednesday. The two companies recently renewed their licensing agreement, industry insiders said, adding that the default search engine fee that Google pays to Samsung depends on the advertising revenue generated by the Alphabet-owned company that is directly attributable to the Google app installed on Samsung-made handsets and tablets. It’s currently unclear when exactly did the two revise the terms of their agreement, though the latest report on the matter suggests that their talks were concluded earlier this summer.
The $3.5 billion estimate which currently translates to just under four trillion won is seemingly based on a recently published market analysis penned by Bernstein’s Toni Sacconaghi who claimed that Google is to pay up to $3 billion to Apple for remaining the default Internet search engine on its upcoming iPhone and iPad models that are set to be released this year. With that particular projection marking a 300 percent increase compared to how much Google was proven to had paid to Apple for the same privilege in 2014, Korean media expects Samsung to earn even more from its own deal with the company behind the most popular Internet search service on the planet. Earlier this week, Mr. Sacconaghi noted how Apple’s service-related revenue was increasing in a significant manner in recent years, largely due to the firm’s licensing deals, hence attributing around a quarter of its operating profit jump since 2014 to Google. Korean industry watchers now claim that Samsung is set to benefit from the same circumstances even more than Apple is, which is how they presumably came to the aforementioned figure.
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The latest development follows shortly after the Mountain View, California-based company revealed that it paid a premium to its advertising partners over the second quarter of 2017, noting how its advertising expenses are presently rising faster than its related revenue and are consequently leading to thinner profit margins. Deals with major OEMs like Samsung and Apple presumably account for a significant part of that increase, though it’s unlikely that Google will be able to negotiate lower rates with device makers in the short term seeing how their install bases are still growing at a steady pace.