Google Antitrust Ruling May Impose A $20 Billion Risk For Apple

An illegal monopoly ruling against Google, owned by Alphabet, threatens the lucrative deal with Apple. Wall Street analysts suggest that Google may need to terminate the agreement, which currently makes its search engine a default on Apple devices, in order to avoid antitrust actions.

According to Morgan Stanley analysts, Google pays Apple $20 billion annually, accounting for about 36 percent of its search advertising revenue generated through the Safari browser. If the agreement is dissolved, Apple’s profit could potentially take a 46 percent hit, as estimated by the analysts.

The agreement is in effect until at least September 2026, with Apple having the right to unilaterally extend it for another two years, according to media reports from May citing a document filed by the Department of Justice in the antitrust case.

Evercore ISI analysts believe that the most likely outcome will be the judge ruling that Google can no longer pay for default placement or that companies like Apple must actively prompt users to choose their preferred search engine instead of setting a default option. Users would then have the freedom to make changes in the settings if desired.

On Tuesday, Apple’s shares were trading flat, lagging behind the broader market’s recovery after a global selloff on Monday. Alphabet, on the other hand, saw little change in its stock price, following a 4.5 percent fall in the previous session.

Legal expert Herbert Hovenkamp from the University of Pennsylvania advises that companies with dominant market positions should avoid exclusive agreements and ensure that any partnerships provide buyers with the freedom to choose alternatives.

Analysts agree that the court ruling will accelerate Apple’s transition towards AI-powered search services. Recently, Apple announced its collaboration with OpenAI to bring the ChatGPT chatbot to its devices.

In an effort to address regulatory scrutiny and move away from exclusive agreements, Apple is also in talks with Google to incorporate the Gemini chatbot and plans to include other AI models. Additionally, Apple is enhancing Siri with AI technology to improve its capability in handling tasks such as composing emails and interacting with messages.

While these initiatives may not generate significant revenue in the near future, they present an opportunity for Apple to leverage the potential of AI solutions in the search market. “Apple sees this as a temporary setback but also an opportunity for them to pivot to AI solutions for search,” according to Gadjo Sevilla, an analyst at Emarketer.