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Google’s Antitrust Ruling Puts Apple at Risk

Posted on by darion

Apple’s lucrative deal with Google could be in jeopardy after a US judge ruled that the Alphabet-owned search giant is operating an illegal monopoly, according to a Reuters report.

Conclusions:

  • A US judge’s ruling that Alphabet’s search giant is operating an illegal monopoly could threaten Apple’s lucrative partnership with Google.
  • Wall Street analysts say a potential remedy for Google to avoid antitrust action could be to terminate the agreement that would make Google Search the default search engine on Apple devices.

Apple’s partnership with Google is on the brink

Potential cure for Google Wall Street analysts said Tuesday that to avoid antitrust action, the company may take action to terminate a deal that would make its search engine the default app on Apple devices.

According to Morgan Stanley analysts, Google pays Apple $20 billion a year, or about 36% of what the company earns from Safari search ads, for the privilege.

Analysts estimate that if the deal falls through, the iPhone maker’s profits could fall by 4-6%.

According to media reports in May, citing a document filed by the Justice Department in the antitrust case, the agreement is valid until at least September 2026, and Apple has the right to unilaterally extend it for another two years.

“The most likely outcome now is for a judge to rule that Google will no longer have to pay for the default setting, or that companies like Apple will have to proactively nudge users to choose their search engine, rather than setting a default search engine and letting consumers make changes to their settings if they wish,” Evercore ISI analysts said.

Apple shares were flat Tuesday, underperforming a broader market rebound from Monday’s global sell-off. Alphabet was little changed after falling 4.5% in the previous session.

“The message is that if you have a dominant market position with a product, you better avoid using exclusivity agreements and make sure that any agreement you enter into gives the buyer the freedom to choose a substitute,” said Herbert Hovenkamp, ​​a law professor at the University of Pennsylvania.

Of course, the “fix” phase could be lengthy, with potential appeals to the U.S. Court of Appeals, the District of Columbia, and the U.S. Supreme Court. The legal wrangling could last until 2026.

AI tilt

Still, if the partnership is dissolved, Apple would have several options, including offering customers alternatives like Microsoft Bing or potentially a new OpenAI-based search product.

Analysts agree that the ruling will accelerate Apple’s shift toward AI-powered search services. The company recently announced it would bring OpenAI’s ChatGPT chatbot to its devices.

Moving away from exclusive deals that would help Apple avoid regulatory scrutiny, the company said it is also in talks with Google to add its Gemini chatbot and plans to add other AI models as well.

Apple is also modernizing Siri with artificial intelligence technology that will give her more control over tasks that have proven difficult in the past, such as writing emails and interacting with news.

While these efforts are expected to generate little profit in the coming years, they could help capitalize on the new technology.

“Apple may see this as a temporary setback, especially since the company makes a lot of money from its Google search deal, but it is also an opportunity for the company to move into AI solutions for search,” said Gadjo Sevilla, an analyst at Emarketer.