Hey Siri, How Positive Is The New Deal With Apple For Google's Ecosystem?

Alphabet Inc GOOG GOOGL’s dominant market share lead in the internet search business just got a little bit bigger. Apple Inc. AAPL has announced it will be switching from Microsoft Corporation MSFT’s Bing search engine to Google for all its default Siri searches. In addition, Apple will now be using Google to power all its iOS and Spotlight searches on Macs.

Bank of America analyst Justin Post sees the news as a positive for Google with the potential to drive modest revenue upside.

“Our initial take is that this is a positive for Google search traffic and ecosystem engagement, a modest positive for ad revenue and, most importantly, makes loss of the core Apple Safari search agreement seem less likely,” Post wrote Tuesday.

Under the new agreement between Apple and Google, Siri searches will return Google raw search results and clicking web links will direct users straight to the linked websites without an intermediate Google landing page. Post says this setup likely means the new deal will not provide a meaningful ad revenue opportunity for Google.

However, Post said the new arrangement does provide more data access for Google and more Google ecosystem engagement by Apple customers, which are both positives. In addition, the fact that Siri video searches will direct Apple users to YouTube could provide an indirect advertising opportunity for Google.

One potential negative impact of the deal is Google’s rising traffic acquisition costs. Bank of America estimates that Google may already be paying Apple as much as $4 billion per year in TAC.

Bank of America maintains a Buy rating and $1,100 price target for Alphabet stock.

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