Apple’s lucrative deal with Google could be in jeopardy after a US judge ruled that the search giant, owned by Alphabet, has an illegal monopoly.
One possible solution for Google to avoid antitrust action could be to end the agreement, which would make Google’s search engine the default on Apple devices, Wall Street analysts said Tuesday.
According to analysts at Morgan Stanley, Google pays Apple $20 billion (approximately Rs 1,67,890 crore) annually, or about 36 percent of search advertising revenue from its Safari browser, for the privilege.
If the deal falls through, the iPhone maker’s profits could fall by 4 to 6 percent, analysts estimate.
The agreement runs through at least September 2026, and Apple has the right to unilaterally extend it for another two years, media reports said in May, citing a Justice Department document filed in the antitrust case.
“The most likely outcome now is that the court rules that Google can no longer pay for default placement or that companies like Apple must proactively ask users to select their search engine rather than setting a default and giving consumers the ability to change the settings if they want,” said analysts at Evercore ISI.
Shares of Apple were trading flat on Tuesday, underperforming the broader market’s recovery following Monday’s global sell-off. Alphabet was little changed after falling 4.5 percent in the previous session.
“The message here is that if you have a dominant market position with a product, you’re better off avoiding the use of exclusivity agreements and making sure that the agreement you enter into gives the buyer the freedom to substitute,” said Herbert Hovenkamp, a law professor at the University of Pennsylvania.
To be sure, the “remedy” phase could be lengthy, followed by potential appeals to the U.S. Court of Appeals, the District of Columbia Circuit, and the U.S. Supreme Court. The legal wrangling could drag on until 2026.
If the partnership does end, Apple has several options. It could offer customers alternatives, such as Microsoft Bing, or possibly a new search product based on OpenAI.
Analysts agree that the ruling will accelerate Apple’s move into AI-powered search services. The company recently announced that it would bring OpenAI’s ChatGPT chatbot to its devices.
In a move away from exclusivity deals that could allow Apple to avoid regulatory scrutiny, the company said it is also in talks with Google to add the Gemini chatbot and has plans to add other AI models as well.
Apple is also revamping Siri with AI technology, giving Siri more control over tasks that have proven difficult in the past, such as writing emails and responding to messages.
While these efforts are expected to generate little money in the coming years, they can help take advantage of the new technology.
“Apple could see this as a temporary setback, especially since it’s making a lot of money off the Google Search deal. But it’s also an opportunity for them to move toward AI solutions for search,” said Gadjo Sevilla, an analyst at Emarketer.
© Thomson Reuters 2024
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