Google’s antitrust loss could put billions at risk for Apple

Google (GOOG, GOOGL) suffered a surprising blow to its search and advertising business on Monday, according to a District of Columbia judge. Amit Mehta ruled in favor of the Justice Department in its antitrust case against the tech giant.

It could also cost Apple (AAPL) a lot.

Here’s how: The ruling could force Google to make drastic changes to its biggest business, but it could also force Google to cancel a long-term revenue-sharing agreement with Apple that requires the iPhone maker to use Google as its engine. default search feature on your various devices.

The agreement, called the Internet Services Agreement, has been in effect since 2002 and has been adjusted over the years as new technologies, such as the iPhone, were introduced. The essence of the agreement is that Apple uses Google as the default search engine for the Safari browser, Spotlight Search and Siri.

In return, Google pays Apple 36% of the search revenue generated on Apple devices that use Google services. While Apple won’t reveal exactly how much it earns from the deal, court documents put the number at $20 billion in 2022, double what Google paid in 2020.

Apple could not immediately be reached for comment.

Revenue from the Google-Apple deal will likely be realized in Apple’s Services business segment, where it lists third-party advertising licensing agreements. In 2022, Apple earned $78.1 billion in services revenue. If the $20 billion estimate is correct, that means the deal represented about 25% of Apple’s services revenue for the year.

Apple’s services business is one of its fastest-growing segments and seen as a bulwark against the company’s slowing iPhone sales. The company has significantly expanded the segment over the years, adding its Apple Music+ and Apple TV+ platforms to the business. But the Google deal still represents a large portion of the services segment’s revenue.

From a company-wide perspective, Apple has generated US$394.3 billion in revenue in 2022meaning the Google deal represented 5% of the company’s annual revenue for the year.

Losing the ISA wouldn’t just hurt Apple. According to court documents, Google conducted internal modeling in 2020 that found it would lose 60% to 80% of search volume on Apple’s iOS devices if its search engine was replaced as the default option.

Losing that search volume would reduce Google’s bottom line by $28 billion to $32 billion. With Google bringing US$182.5 billion in revenue in 2020This would reduce the company’s bottom line by $15% to 17%.

The story continues

Google will certainly appeal the DOJ’s victory, but if Mehta’s decision is upheld, Apple and Google could face serious financial problems.

Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.

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