Google pays Apple an annual sum ranging from $18 billion to $20 billion to maintain its status as the primary search engine on the iPhone. This arrangement is currently under scrutiny due to a civil antitrust lawsuit filed by the Department of Justice (DoJ) against Google, alleging monopolistic behavior in the field of search and search advertising. Bernstein, an advisory firm for institutional investors, has analyzed the potential consequences of this lawsuit for Apple.
The trial, which commenced last month, centers on the Information Services Agreement (ISA) between Apple and Google, cited as a prime example of anticompetitive conduct. Bernstein’s report indicates that there’s a possibility the federal courts could rule against Google, leading to the termination of its search deal with Apple. According to Bernstein, the ISA is responsible for annual payments of $18 billion to $20 billion from Google to Apple, making up 14-16 percent of Apple’s annual operating profits.
While experts acknowledge the possibility of Google losing the case and its profitable agreements with Apple, Samsung, Mozilla, and other companies being in jeopardy, the economic impact on Apple is expected to be manageable. Google’s antitrust case is unlikely to conclude before 2024, and the subsequent appeals process will prolong the proceedings.
Notably, the DoJ’s estimate of Apple’s earnings from the ISA with Google is around $10 billion, but these figures are based on external sources rather than information from Apple or Google, as noted in Bernstein’s report.
It’s important to stress that in this antitrust trial, Google is the defendant, not Apple. Apple has the option to partner with an alternative search engine to become the default choice (or maintain an agreement with Google outside the US). Another plausible scenario is that Apple could introduce a choice screen, allowing users to select their preferred search engine. Apple’s control over its installed user base, generating over $60 billion in advertising revenue, would still enable them to command a commission (typically in the range of 25-30 percent) for providing access to these search advertising revenues.
Furthermore, the introduction of a choice screen could potentially pave the way for Apple to launch its own search engine as an alternative, a move that would likely draw less regulatory scrutiny than it might today.