US Antitrust Verdict Threatens Lucrative Apple-Google Agreement

Apple’s lucrative arrangement with Google is under threat following a U.S. judge’s ruling that Google’s search engine monopoly is illegal.

Wall Street analysts suggest that Google might have to terminate its agreement with Apple to avoid antitrust actions, posing a potential $20 billion annual risk for Apple.

Google currently pays Apple $20 billion annually, approximately 36% of its search advertising revenue through the Safari browser, as reported by Morgan Stanley analysts. If this deal is undone, Apple could face a 4-6% decline in its profit, analysts estimate.

The current agreement between the two tech giants runs until at least September 2026, with Apple holding the right to extend it unilaterally for an additional two years, according to a document filed by the Department of Justice in the antitrust case, cited in media reports from May.

Evercore ISI analysts suggest that the most likely outcome is that Google will be prohibited from paying for default placement. Alternatively, companies like Apple may be required to prompt users to select their search engine proactively, rather than setting a default and allowing consumers to change settings if they wish.

On Tuesday, Apple shares were trading flat, underperforming a recovery in the broader market following Monday’s global selloff. Alphabet shares remained relatively unchanged after a 4.5% decline in the previous session.

“The message here is that if you’ve got a dominant market position with a product, you’d better avoid the use of exclusive agreements and ensure any agreement you make gives the buyer free choice to substitute away,” commented Herbert Hovenkamp, a professor of law at the University of Pennsylvania.

The legal wrangling over the “remedy” phase could be lengthy, with potential appeals to the U.S. Court of Appeals, the District of Columbia Circuit, and the U.S. Supreme Court. This process could extend into 2026.

AI TILT

Should the agreement be scrapped, Apple has several options, including offering customers alternatives such as Microsoft Bing or potentially developing a new search product powered by OpenAI. Analysts agree that the ruling will accelerate Apple’s shift towards AI-powered search services. Recently, Apple announced plans to bring OpenAI’s ChatGPT chatbot to its devices.

In a move away from exclusive deals, Apple is also in talks with Google to add the Gemini chatbot and plans to incorporate other AI models. Additionally, Apple is revamping Siri with AI technology to handle tasks that were previously challenging, such as writing emails and interacting with messages.

While these AI efforts are not expected to generate significant revenue in the near term, they could help Apple capitalise on new technology. “Apple could see this as a temporary setback, especially since it earns a lot from the Google search deal, but it is also an opportunity for them to pivot to AI solutions for search,” said Gadjo Sevilla, an analyst at Emarketer.

The ruling against Google is part of a broader trend of increasing scrutiny on tech giants’ market practices. As regulatory bodies worldwide continue to clamp down on monopolistic behaviours, companies are being forced to rethink their strategies and explore new avenues for growth and innovation. For Apple, this may be an opportune moment to enhance its AI capabilities and diversify its revenue streams beyond its existing partnerships.

Image source: apple.com

Read also:

Major Antitrust Ruling Against Google May Reshape Online Search Landscape

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