It was once a blossoming symbiotic relationship but has in recent years turned into something more akin to a weekly brawl at the local watering hole. Apple and Google have worked together for many years and that will probably not change in the near future, even though they are constantly at each other‘s throats in court.
There has obviously always been a nominal fee charged by Apple to allow Google to be the go-to search engine on iOS devices. According to reports, as recently as 2009 that amount was $82 million. That seems very little if you consider that Google makes more money from revenue generated through Apple products than from Android. Although that is likely to shift soon as Android has become the dominant operation system among smartphones, there is still a big revenue stream from Apple that Google would not want to disrupt.
The important thing to remember is that Google not only want to remain on iOS devices because of the advertising revenue, but also to keep supplementing their huge data stores, which is the backbone of their business. To keep this privilege though, Google might have to cough up as much as $1 billion!
It is unlikely that Apple would want to use any other search engine (what were they going to use anyway, Bing?) so this massive jump in price to Google could point to different scenarios. Either Apple rejected Google‘s initial offer and are now simply trying to negotiate the price upwards, or they might be working on their own engine and won‘t need the service much longer. Or, most likely, Apple thinks it is the be all and end all and can do whatever the hell they want.