Google antitrust ruling may pose $20 billion risk for Apple

A U.S. court ruling that Alphabet’s search giant is operating an illegal monopoly could threaten lucrative contracts with Apple and Google.

Wall Street analysts said Tuesday that Google could end its agreement to make its search engine the default on Apple products as a potential solution to avoid an antitrust lawsuit.

Google pays Apple $20 billion a year for the rights, or about 36% of search advertising revenue via its Safari browser, according to Morgan Stanley analysts.

Analysts estimated that if the deal were to be scrapped, the iPhone maker’s profits could fall by 4 to 6 percent.

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The agreement will be in effect until at least September 2026, with Apple having the right to unilaterally extend it for another two years, according to media reports in May citing documents filed by the Department of Justice in its antitrust lawsuit.

“The most likely outcome at this point is that the judge will either rule that Google doesn’t have to pay for default placement, or that companies like Apple must actively nudge users to choose their search engine, rather than setting a default and allowing consumers to change it if they wish,” Evercore ISI analysts said.

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Google plans to appeal the court’s decision that it illegally maintained a monopoly. (Photo by Tayfun Coskun/Anadolu Agency via Getty Images)

Apple shares traded flat on Tuesday, underperforming the broader market recovery after Monday’s global sell-off, while Alphabet was little changed after falling 4.5% in the previous trading session.

“The message here is that if you have a monopoly on a product, you’d be better off avoiding the use of exclusivity agreements and making sure any agreement you have gives buyers the right to freely choose alternatives,” said Herbert Hovenkamp, ​​a law professor at the University of Pennsylvania.

Indeed, the “relief” phase could be protracted, followed by appeals to the U.S. Court of Appeals, the U.S. Court of Appeals for the District of Columbia Circuit, and the U.S. Supreme Court. The legal battle could continue into 2026.

AI Tilt

Still, if the partnership were to end, Apple would have several options, such as offering customers alternatives like Microsoft’s Bing or offering a new search product powered by OpenAI.

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

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According to Morgan Stanley, Google pays Apple $20 billion a year for search advertising revenue on Apple’s Safari web browser. (Photographer: Michael Nagle/Bloomberg via Getty Images/Getty Images)

Apple, moving away from exclusivity agreements that help it avoid regulatory scrutiny, said it was in talks with Google to add the Gemini chatbot and planned to add other AI models as well.

Apple is also using AI techniques to improve Siri, giving it more control over previously difficult tasks like composing emails and messaging.

While these efforts are not expected to generate much profit over the next few years, they could help leverage new technologies.

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“Apple may see this as a temporary setback, especially as it benefits greatly from its search deal with Google, but it also represents an opportunity to pivot towards AI solutions for search,” said Gadjo Sevilla, an analyst at eMarketer.