Apple’s lucrative deal with Google may be in jeopardy following a ruling by a U.S. judge that deemed the Alphabet-owned search giant to be operating an illegal monopoly. Wall Street analysts suggest that as a potential remedy to avoid antitrust actions, Google could terminate the agreement, which currently makes its search engine the default option on Apple devices. According to Morgan Stanley analysts, Google pays Apple $20 billion annually, accounting for approximately 36 percent of its earnings from search advertising made through the Safari browser. If the deal is undone, it is estimated that Apple’s profit could take a hit of 4-6 percent.
The agreement between Apple and Google is set to run until at least September 2026, with Apple having the right to unilaterally extend it for another two years. However, media reports in May cited a document filed by the Department of Justice in the antitrust case suggesting that Apple has this extension option.
Evercore ISI analysts believe that the most likely outcome now is for the judge to rule that Google must no longer pay for default placement or require companies like Apple to prompt users proactively to select their preferred search engine instead of setting a default option.
While Apple’s shares were trading flat on Tuesday amidst a broader market recovery after Monday’s global selloff, Alphabet saw little change after falling 4.5 percent in the previous session.
Herbert Hovenkamp, a professor of law at the University of Pennsylvania, emphasized that companies with dominant market positions should avoid exclusive agreements and ensure any agreements allow buyers free choice for substitution.
Analysts agree that this ruling will accelerate Apple’s shift towards AI-powered search services. The company recently announced plans to bring OpenAI’s ChatGPT chatbot to its devices and is also in talks with Google about adding Gemini chatbot and other AI models. Additionally, Apple aims to enhance Siri with AI technology for improved task handling such as writing emails and interacting with messages.
Although these efforts are not expected to generate significant revenue in the near future, they present an opportunity for Apple to pivot towards AI solutions for search while potentially mitigating any temporary setbacks caused by losing out on revenue from their deal with Google.