Apple could lose big if Google loses DOJ antitrust case

Google  (GOOGL) - Get Free Report pays big bucks to be the dominant search engine on Apple  (AAPL) - Get Free Report products. Analysts at Bernstein estimate that Google pays Apple between $18 billion to $20 billion annually to keep its default spot. And if Google loses its antitrust case with the U.S. Department of Justice, which was filed in 2020, the deal could be terminated.

"We believe there is a possibility that federal courts rule against Google and force it to terminate its search deal with Apple," said Bernstein in the report, according to The Register. "We estimate that the ISA is worth $18-20 billion in annual payments from Google to Apple, accounting for 14-16 percent of Apple's annual operating profits."

Apple has had the information services agreement (ISA) with Google since 2002 — though the deal didn’t involve revenue sharing until 2005. Many Mac users since then could find Google as the default search engine on Apple’s Safari browser. The same default search engine could be found on iPhones in 2007 and iPads in 2010 as the deal expanded.

According to Bernstein’s report, it is estimated that Apple receives a 40% cut from the 22% of ad revenue Google pays in traffic acquisition costs.

The Department of Justice vs. Google

Nearly three years ago on Oct. 20, 2020, the Department of Justice filed an antitrust lawsuit against Google, alleging that the company has operated illegally as a monopoly by making agreements, such as the one it has with Apple, to remain the gatekeeper of the internet.

"As the antitrust complaint filed today explains, [Google] has maintained its monopoly power through exclusionary practices that are harmful to competition," said Jeff Rosen, then-U.S. deputy attorney general, in a conference call with reporters. "If the government does not enforce the antitrust laws to enable competition, we could lose the next wave of innovation. If that happens, Americans may never get to see the next Google."

Google argued last month that consumers can easily change their default search engine on the Safari browser and that its licensing agreements are standard business practices. The company also said that its browser agreements are not exclusive, highlighting that Yahoo and Bing also pay to be featured on Safari.

Related: A top Apple exec is coming to Google's rescue in DOJ antitrust case

Potential results of the antitrust case

A ruling on the antitrust case is expected in 2024. If the Department of Justice rules against Google its deal with Apple would be nixed. Other similar agreements Google has — such as the ones it has with Samsung and Mozilla — could also be put at risk.

According to Bernstein’s report, even if Apple does end up losing its billion-dollar monthly income from Google as a result of possibly losing the case, it won't have a huge economic impact on the trillion dollar company.

"Importantly, Google is on trial, not Apple, and Apple could (in theory) partner with another search engine to be the default (and/or retain the agreement with Google outside the US)," the report states.

Bernstein also notes that Apple might also end up offering a choice screen for consumers which could open the door for Apple to launch its own search engine as one of the options, something that has been rumored to be an interest of Apple for years.

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