Google pays Apple a staggering $20 billion every year to make its search engine the default on Apple devices. Now, what happens if this deal falls apart?
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Just a few days ago, a U.S. judge ruled that Google is operating an illegal monopoly. This ruling has huge implications, especially for Apple’s lucrative deal with Google. You see, Google pays Apple a staggering $20 billion every year to make its search engine the default on Apple devices. That’s a cool 36% of what Google earns from search advertising through Safari, according to Morgan Stanley analysts.
Now, what happens if this deal falls apart? The analysts predict that Apple could see a 4 to 6% hit to its profit if Google is forced to terminate this agreement. Ouch. This deal isn’t just pocket change; it runs until at least September 2026, and Apple even has the option to extend it for another two years. But with the current ruling, things are looking uncertain.
What are the possible outcomes here? Let’s break it down.
Google’s recent antitrust ruling is a game-changer
It’s August 10, 2024, and you’re reading the Tech Pulse from Mighty-Technologies.com.
If you’ve been following the news, you know that Google’s recent antitrust ruling is a game-changer.
Apple is also in hot water with the US Department of Justice, accused of maintaining a monopoly. Yes, the FEDs have set their sights on Apple’s infamous walled garden, which some fans will defend to their last breath. But the government thinks Apple’s using the guise of privacy to hide some pretty shady business practices.
And it’s not just the US. Apple’s had a run-in with the EU, too. They had to open up their payment service to competitors like Epic Games. So, guess what? Fortnite is making a comeback to the App Store.
But Apple’s not alone on the naughty list. Meta is also in trouble, facing a lawsuit for its anti-competitive buys like Instagram and WhatsApp. And let’s not forget Amazon, battling accusations of squeezing its sellers with anti-discount measures and cozy contracts that favor its own products.
But what does Google’s recent antitrust ruling mean for Apple?
According to Evercore ISI analysts, the most likely scenario is that the judge might rule that Google can no longer pay for default placement on Apple devices. Alternatively, companies like Apple might have to prompt users to choose their preferred search engine instead of setting a default. This would give consumers more freedom to switch, but it would also disrupt the current setup.
Interestingly, Apple’s shares remained flat on Tuesday, not really reacting to the broader market recovery after Monday’s global selloff. Alphabet, on the other hand, saw a 4.5% drop in the previous session but remained little changed afterwards. The market is clearly reacting to the uncertainty.”
Herbert Hovenkamp, a law professor at the University of Pennsylvania, puts it simply: ‘If you’ve got a dominant market position, avoid exclusive agreements. Make sure any agreement you have gives the buyer free choice.’ This ruling is a wake-up call for all tech giants.
Now, let’s talk about the future.
The legal battles could drag on until 2026 with appeals and all that jazz.
But if Google and Apple do part ways, Apple has some interesting options. They could integrate alternatives like Microsoft Bing or even develop a new search product powered by OpenAI. Imagine using ChatGPT directly on your iPhone for search queries. Pretty cool, right?
This ruling might actually accelerate Apple’s shift towards AI-powered search services.
Apple recently announced plans to bring OpenAI’s ChatGPT to its devices, and they’re even talking to Google about adding the Gemini chatbot.
Plus, they’re revamping Siri with AI, making it smarter and more capable than ever. While these AI initiatives might not bring in the big bucks immediately, they position Apple to capitalize on new technology trends.
Gadjo Sevilla, an analyst at Emarketer, sees this as both a setback and an opportunity for Apple. He says, ‘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.’
So, there you have it. The Google antitrust ruling is shaking up Big Tech in a big way. Apple might face some short-term pain, but it could also lead to exciting new AI developments. What do you think? Will Apple bounce back stronger? Let us know in the comments below.
That has been the Tech Pulse. Thanks for reading and see you next time!