Apple’s Implications in Google vs. US

Google is facing intense scrutiny in a legal battle with the US Department of Justice over alleged antitrust violations, particularly regarding its agreement with Apple. The deal involves Google Search being the default on iPhones, initially reported to cost nearly $15 billion annually. However, a recent Bernstein financial report, cited by Apple Insider, suggests the deal’s value could be even higher, ranging from $18 billion to $20 billion in annual payments. This constitutes around 14-16 percent of Apple’s annual operating profits.

Could this deal be a significant hit to Apple’s yearly earnings?

If Google loses the case, the US DOJ might force both companies to end their agreement, potentially impacting Apple’s revenue. However, according to the Bernstein report, Apple could consider continuing the deal internationally or forming a similar arrangement with another entity.

Importantly, the report underscores that Google is the one facing the trial, not Apple. In theory, Apple could establish a new partnership with an alternative search engine to secure the default position or continue its deal with Google outside the United States.

During the testimony, Microsoft executives suggested that Bing Search could be a viable alternative if Apple’s deal with Google were to end. In contrast, Apple defended its use of Google Search as the default engine, stating it’s the best available choice.

Securing the default search engine position on iPhones is of great value to Google, as search advertising revenues play a pivotal role in Google’s overall income. Google willingly pays Apple almost $20 billion annually for this privilege. The report highlights that Apple has significant control over its extensive user base, responsible for generating over $60 billion in advertising revenues. Therefore, it is anticipated that Apple will continue to negotiate a commission, estimated at 25-30 percent, for providing access to these advertising revenues.