Apple’s $20 billion annual deal with Google is under threat after a U.S. judge ruled that the Alphabet-owned search giant was operating an illegal monopoly.
Google pays Apple approximately 36 percent of what it earns from search advertising made through the Safari browser, amounting to $20 billion annually, as per Morgan Stanley analysts. Should the deal be undone, Apple could face a significant 4-6 percent hit to its profits. Apple reported profit of $96.99 billion on revenue of $383.29 billion in its 2023 fiscal year.
The agreement, which runs until at least September 2026, gives Apple the right to unilaterally extend it for another two years. This detail was revealed in a document filed by the Department of Justice during the antitrust case against Google, Reuters news report said.
The agreement, which ensures Google’s search engine remains the default on Apple devices, could be terminated as a remedy to avoid antitrust actions, according to analysts.
Evercore ISI analysts suggest that the most probable outcome is that the judge may rule for Google to cease paying for default placement or mandate companies like Apple to prompt users to select their search engine rather than setting a default and allowing changes in settings.
If the tie-up is scrapped, Apple has several alternatives. These include offering customers other search engines such as Microsoft Bing or potentially introducing a new search product powered by OpenAI. Analysts predict that the ruling could accelerate Apple’s transition towards AI-powered search services. Recently, Apple announced the integration of OpenAI’s ChatGPT chatbot into its devices.
In a strategic shift to avoid regulatory scrutiny, Apple is also exploring partnerships with other AI models. The company is in talks with Google to add the Gemini chatbot and plans to incorporate additional AI models.
Apple is also enhancing Siri with advanced AI technology, enabling it to perform tasks such as writing emails and interacting with messages more efficiently. While these efforts are not expected to generate substantial revenue in the short term, they could position Apple to capitalize on emerging AI technologies.
“Apple could see this as a temporary setback, especially since it earns a lot from the Google search deal, but it is also an opportunity for them to pivot to AI solutions for search,” said Gadjo Sevilla, an analyst at Emarketer.
