
Why Apple has a lot to lose in the legal dispute between Google and the US
Google is currently embroiled in a contentious legal battle with the US Department of Justice, facing allegations of abusing its market dominance in an antitrust case. The core of this case revolves around the longstanding deal between Google and Apple, which designates Google Search as the default search engine on iPhones. Recent reports indicate that the financial terms of this deal are even more substantial than previously thought.
According to a Bernstein financial report, the Information Services Agreement (ISA) between Google and Apple is estimated to be worth $18-20 billion in annual payments from Google to Apple. This agreement represents a significant portion of Apple's annual operating profits, accounting for approximately 14-16 percent.
If Google loses the antitrust case and is compelled to terminate the deal, it would have a substantial impact on Apple's revenues. Nevertheless, the report suggests that Apple might explore alternative options, either by continuing the deal outside the United States or entering into a similar agreement with another search engine provider.
During the case, Microsoft executives were called as witnesses and proposed that Bing Search could be a viable alternative if Apple were to discontinue its agreement with Google. Apple, however, has maintained that it uses Google Search as the default engine because it is considered the best option available.
Being the default search engine on iPhones is highly lucrative for Google, as it is a significant source of search advertising revenue. Google reportedly pays Apple close to $20 billion annually for this privilege. The Bernstein report also suggests that Apple would likely continue to demand a commission, estimated to be in the range of 25-30 percent, for providing access to the search advertising revenues generated from its user base, which exceeds $60 billion.