Apple’s lucrative agreement with Google may be jeopardized following a U.S. judge’s ruling that the Alphabet-owned search giant is engaging in illegal monopolistic practices
Wall Street analysts suggested on Tuesday that Google could potentially avoid antitrust actions by terminating the agreement that makes its search engine the default on Apple devices.
Morgan Stanley analysts estimate that Google compensates Apple with $20 billion annually, equivalent to approximately 36% of its revenue from search advertising through the Safari browser.
The analysts predicted that the iPhone manufacturer could experience a 4-6% profit decline if the agreement were revoked.
According to media reports in May that cited a document filed by the Department of Justice in the antitrust case, the pact is valid until at least September 2026. Apple has the authority to extend it for an additional two years unilaterally.
“The most likely outcome now is the judge rules Google must no longer pay for default placement or that companies like Apple must proactively prompt users to select their search engine rather than setting a default and allowing consumers to make changes in settings if they wish” according to analysts at Evercore ISI.
On Tuesday, Apple’s shares were trading steadily, underperforming the broader market’s recovery following Monday’s global selloff. Alphabet experienced minimal fluctuations after its 4.5% decline in the previous session.
Herbert Hovenkamp, a law professor at the University of Pennsylvania, emphasized the importance of avoiding exclusive agreements and ensuring that any deal is permissible for the vendor to substitute.
Yes, the “remedy” phase may be protracted, and prospective appeals to the U.S. Court of Appeals, the District of Columbia Circuit, and the U.S. Supreme Court may follow. The legal disputes may persist until 2026.
AI TILT
However, if the partnership is terminated, Apple will have a variety of alternatives, including the possibility of introducing a new search product powered by OpenAI or providing customers with other options, such as Microsoft Bing.
Analysts concur that the decision will expedite Apple’s transition to AI-powered search services. It has recently disclosed that it intends to integrate OpenAI’s ChatGPT chatbot into its devices.
Apple has announced that it is in discussions with Google to integrate the Gemini chatbot and plans to incorporate additional AI models as it transitions from exclusive agreements that would aid in mitigating regulatory scrutiny.
Siri is also being updated by Apple with AI technology, granting it greater autonomy in managing tasks that have previously been challenging, such as composing emails and interacting with communications.
Even though those endeavors are anticipated to generate minimal revenue in the years ahead, they can potentially leverage the 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,” according to Gadjo Sevilla, an analyst at Emarketer.
