Apple’s lucrative deal with Google could be at risk after a US judge ruled that the Alphabet-owned search giant was running an illegal monopoly.
Wall Street analysts said on Tuesday that one possible way for Google to avoid antitrust action could be to end the agreement, which would make its search engine the default on Apple devices.
According to analysts at Morgan Stanley, Google pays Apple $20 billion a year for this privilege, accounting for about 36% of its revenue from search advertising conducted through the Safari browser.
Analysts estimate that the iPhone maker could see its profits hit by 4-6% if the deal goes through.
The agreement will run until at least September 2026 and Apple has the right to unilaterally extend it for two years, according to media reports in May, which cited a document filed by the Justice Department in the antitrust case.
“The most likely outcome now is that the judge will rule that Google no longer has to pay for default placement or that companies like Apple will have to actively encourage users to choose their search engine, rather than setting defaults and allowing consumers to change settings at will,” Evercore ISI analysts said.
Apple shares were trading steady on Tuesday, lagging the broader market recovery after Monday’s global sell-off. Alphabet was little changed after falling 4.5% in the previous session.
“The message here is that if you have a dominant position in the market with a product, you better avoid the use of exclusive agreements and make sure that any agreement you do enter into gives the buyer a free choice of substitution,” said Herbert Hovenkamp, a law professor at the University of Pennsylvania.
Of course, the “cure” 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 dispute could last until 2026.
AI Tilt
Still, if this alliance falls through, Apple will have several options, including offering customers an alternative such as Microsoft Bing, or possibly a new search product powered by OpenAI.
Analysts agree that the decision will accelerate Apple’s move toward AI-powered search services. It recently announced it would bring OpenAI’s ChatGPT chatbot to its devices.
Beyond specific deals that would help Apple avoid regulatory scrutiny, the company has said it is in talks with Google to add the Gemini chatbot and plans to add other AI models as well.
Apple is also revamping Siri with AI technology, giving it more control to handle tasks that proved difficult in the past, such as composing emails and interacting with messages.
Although these efforts are expected to generate little funding in the coming years, they can still help take advantage of new technologies.
“Apple may see this as a temporary setback, especially since they get a lot of revenue from the Google search deal, but it’s also an opportunity for them to focus on AI solutions for search,” said eMarketer analyst Gadjo Sevilla.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)