If the deal is undone, the iPhone maker could cut its profits by 4 to 6%, analysts estimate.
San Francisco:
Apple’s lucrative deal with Google could be in jeopardy after a US judge ruled that Alphabet’s search giant was operating an illegal monopoly.
A possible remedy for Google to avoid antitrust action could be to terminate the agreement, which would make the search engine standard on Apple devices, Wall Street analysts said Tuesday.
Google pays Apple $20 billion annually, or about 36% of what it makes from search ads through the Safari browser, for the privilege, Morgan Stanley analysts said.
If the deal is undone, the iPhone maker could cut its profits by 4 to 6%, analysts estimate.
The pact lasts until at least September 2026 and Apple has the right to unilaterally extend it for another two years, according to media reports in May that 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 can no longer pay for default placements, or that companies like Apple must proactively ask users to select their search engine instead of setting a default search engine and allow consumers to make changes to the settings if they want,” he says. Evercore ISI analysts said.
Apple shares traded flat on Tuesday, lagging the broader market’s recovery from 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 market position with a product, it is better to avoid the use of exclusive agreements and ensure that any agreement you make gives the buyer the free choice to replace something,” says Herbert Hovenkamp . professor of law at the University of Pennsylvania.
To be fair, the “remediation phase” could be lengthy, followed by possible appeals to the U.S. Court of Appeals, the District of Columbia Circuit, and the U.S. Supreme Court. The legal wrangling could last into 2026.
AI TILT
But if the partnership is dropped, Apple will have several options, including offering alternatives like Microsoft Bing to customers, or possibly a new search product powered by OpenAI.
Analysts agree that the ruling will accelerate Apple’s move into AI-powered search services. It recently announced that it would be bringing OpenAI’s ChatGPT chatbot to its devices.
In a shift away from exclusive deals that would help Apple fend off regulatory scrutiny, the company has said it is also in talks with Google to add the Gemini chatbot and plans to add other AI models as well to add.
Apple is also innovating Siri with AI technology, giving it more control over tasks that have proven difficult in the past, such as writing emails and interacting with messages.
While these efforts are not expected to raise much money in the coming years, they can help capitalize on the new technology.
“Apple could see this as a temporary setback, especially as it makes a lot of money from Google’s search deal, but it is also an opportunity for them to move into AI solutions for search,” said Gadjo Sevilla, analyst at Emarketer.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
