Antitrust Ruling Against Google Threatens Apple Partnership

Antitrust Ruling and Google Search Monopoly

A Google antitrust ruling has disrupted its partnership with Apple, posing a threat to a significant revenue stream for Apple. Google has historically paid Apple billions in search advertising revenue to remain the default search engine on Apple devices, reaching $20 billion in 2022. The ruling by US District Judge Amit Mehta could force Apple to consider less lucrative alternatives, such as a revenue-sharing agreement with Microsoft’s Bing. Other companies, like Mozilla, which relies heavily on Google’s payments for its browser, may also be impacted.

Apple executives defended the partnership during the trial, emphasizing the mutual benefits. Despite the ruling, Apple has not made a statement but is expected to be heavily involved in determining ways to move forward from Google’s legal breaches. Analysts suggest Apple might have to accept less profitable deals or even stop selling search defaults altogether. Another potential, yet risky, option for Apple is to develop its own search engine, which could lead to significant revenue loss.

In addition, the search market is evolving with the rise of generative AI chatbots from Google and Microsoft, and Apple has announced a partnership with OpenAI to enhance its own AI capabilities. Apple also faces its own antitrust lawsuit filed by the Department of Justice, reflecting a growing tension with US policymakers.

Google plans to appeal the decision, but analysts believe the ruling makes a successful appeal unlikely.  Despite the growth of traditional search advertising, which is expected to reach $184 billion in the US by 2028, this ruling complicates Apple’s future plans.

Stock Prices Implications

Alphabet Stock

Alphabet’s stock experienced a slight rise after an initial 4% drop following the federal judge’s ruling that Google unlawfully maintained a monopoly in search and text advertising. Despite the ruling, analysts remain optimistic about Alphabet’s prospects, with a “Buy” consensus and significant upside potential due to strong macro factors and AI integrations. Alphabet plans to appeal the decision, arguing it limits access to its superior search engine, but analysts believe the ruling will have minimal near-term impact on the stock.

Apple Stock

Apple’s stock has been impacted heavily by the Google antitrust ruling and is on the decline. A “correction”, which is a decline of 10% or more in the price of a security or market, can last from days to months and, despite its short-term damage, can be beneficial by adjusting overvalued prices and creating buying opportunities. Analysts have stated that the Apple stock is in a state of “correction.”

7 Key Takeaways of the Google Ruling

1. A U.S. District Judge ruled that Google’s search engine illegally exploited its dominance to stifle competition and innovation
2. Google controls 89.2% of the general search market, and controls up to 94.9% on mobile devices
3. The ruling follows a yearlong antitrust trial, with Judge Amit Mehta finding Google guilty of monopolistic practices in the search market.
4. Google plans to appeal the decision, but analysts predict a low chance of success due to the thorough nature of the ruling. This process could take as long as 5 years.
5. The ruling highlights Google’s annual expenditure of over $26 billion to secure default search engine agreements on new devices, which the court sees as a tactic to maintain its monopoly.
6.  Judge Mehta acknowledged the quality of Google’s search engine but emphasized that its success was also due to anti-competitive practices, not just product superiority.
7. The case calls for a new legal phase to determine appropriate fixes, which could range from taking down parts of Google’s operations to banning default search agreements, affecting companies like Apple.

Looking Forward

The antitrust ruling against Google is a significant turning point for both tech giants, with potentially devastating consequences. For Apple, the need to explore less profitable alternatives or invest in developing its own search engine shows the challenges ahead. This disruption comes at a time when the search market is rapidly evolving, driven by advancements in AI technology. Apple’s recent partnership with OpenAI indicates a strategic move to diversify and strengthen its AI capabilities, potentially offsetting some of the revenue impact. As Apple navigates these complexities, its relationship with policymakers and ongoing antitrust scrutiny will play important roles in shaping its future growth.