Apple’s lucrative agreement with Google is facing significant risk after a U.S. judge ruled that Google, owned by Alphabet, has been operating an illegal monopoly. As a potential remedy to avoid antitrust actions, Google might have to terminate its agreement with Apple, which makes Google’s search engine the default on Apple devices. Wall Street analysts suggested this move on Tuesday.
Google currently pays Apple $20 billion annually, which accounts for about 36% of Google’s earnings from search advertising through the Safari browser, according to Morgan Stanley analysts. If this deal is undone, it could result in a 4-6% reduction in Apple’s profit.
The agreement is set to run until at least September 2026, with Apple having the option to unilaterally extend it for an additional two years, based on a document filed by the Department of Justice in the antitrust case. Evercore ISI analysts indicated that the most likely outcome would be a ruling against Google paying for default placement or a mandate for companies like Apple to prompt users to select their preferred search engine proactively.
Apple’s shares were flat on Tuesday, lagging behind a broader market recovery after Monday’s global selloff. Alphabet’s shares showed little change after a 4.5% drop in the previous session. Herbert Hovenkamp, a law professor at the University of Pennsylvania, remarked that dominant market players should avoid exclusive agreements and ensure that agreements provide buyers with the freedom to choose alternatives.
The legal process, including potential appeals, could extend into 2026. If the deal is scrapped, Apple might offer alternatives such as Microsoft Bing or develop a new search product powered by OpenAI. The ruling is expected to accelerate Apple’s shift towards AI-powered search services. Apple recently announced plans to integrate OpenAI’s ChatGPT chatbot into its devices and is in talks with Google to add the Gemini chatbot, with plans to include other AI models.
Apple is also enhancing Siri with AI technology to handle tasks like writing emails and interacting with messages. While these efforts might not generate significant revenue in the near future, they could help Apple leverage new technology.
Gadjo Sevilla, an analyst at Emarketer, suggested that while this situation could be a temporary setback for Apple, it also presents an opportunity to pivot to AI solutions for search.