Google's Pichai decried bad 'optics' of search engine deal with Apple

By Leah Nylen

Google’s Sundar Pichai raised concerns years before he became the company’s chief executive officer that its deal with Apple Inc. had bad “optics” because there was no choice of which search engine to use in the company’s web browser.
 

Emails Pichai wrote in 2007 to Google co-founders Larry Page and Sergey Brin, among other executives, were introduced as evidence in the Justice Department’s antitrust case against Alphabet Inc.’s Google, which is underway in Washington. The emails, written when Pichai was in charge of Google’s Chrome browser, show concerns about the company’s agreement to pay Apple in exchange for being the pre-selected search option on the Safari browser.

“I know we are insisting on default, but at the same time I think we should encourage them to have Yahoo as a choice in the pull down or some other easy option,” Pichai wrote of the agreement, which is at the center of the government’s case. “I don’t think it is a good user experience nor the optics is great for us to be the only provider in the browser.”

The Justice Department and state attorneys general allege that Google has paid Apple and smartphone makers including Samsung Electronics Co. billions of dollars in revenue-sharing agreements to keep rival search engines from gaining users. The deals offer a percentage of the revenue Google makes from search-based advertising in exchange for being the default tool on browsers and smartphones. 

The Justice Department says Google pays more than $10 billion a year in these contracts, although the exact figures remain confidential. Google denies that the agreements harm competition and says it’s easy for consumers to switch to alternatives if they want.

Joan Braddi, Google’s vice president for product partnerships and the key negotiator of the Apple agreement, was one one of the executives copied on Pichai’s emails. She was called as a witness by the Justice Department on Tuesday and asked about the exchanges. Prosecutor Adam Severt also asked whether the benefits to Google search are worth the cost of propping up Apple, the company’s biggest rival in mobile operating system software.

“I don’t know that we’ve ever looked at it that way,” said Braddi, who has worked for Google for 24 years and was among its first employees. The agreement between Google and Apple places no limits on how the iPhone maker uses the money, she said, adding that she is “sure” Apple has used the payments to improve its iOS product, which competes with Google’s Android operating system.

Braddi negotiated Google’s original 2002 deal with Apple to make its search engine the default on the Mac’s Safari browser. The original agreement contained no money, but the companies amended it in 2005 to add a revenue-share. The deal later expanded to the iPhone in 2007 and the iPad in 2010. 

In 2007, 2009 and 2012, Apple proposed amendments to the deal that would have allowed it “more flexibility” on the search default, Braddi testified. In 2014, the companies signed another amendment that allowed Apple to use other search engines in some countries, Braddi said.

Today, Safari uses non-Google search engines in Russia, China and South Korea. 

The 2014 amendment took 17 months to negotiate, Braddi said, because it included aspects related to intellectual property and mapping services. At the time, Google was concerned that Apple might try to divert queries to other companies — like Amazon.com Inc. or Yelp Inc. — in exchange for additional shares of revenue from those companies instead of sending searches to Google, according to a 2013 email exchange between the two companies. 

That concern was what led Google to ask for a clause that requires Apple to use the search engine in a “substantially similar” manner to how it had previously, she said, adding that it was not an effort to block Apple from expanding its own services.

Severt asked Braddi if Google pays “a significant amount of money” to Apple for the Safari revenue-share. 

“It wasn’t always,” she said. “But today, yes.”

Since 2018, Google has monitored Apple’s earnings calls and measured how much the revenue-share contributes to the iPhone maker’s operating income, Braddi said. The exact figures remain sealed. Braddi declined to say whether she would characterize the revenue-share as a “meaningful” percentage of Apple’s operating income.

“I’m not a finance person,” she said.