Alphabet Inc.’s lucrative agreement to make Google the default search engine on Apple devices is facing serious challenges following a wave of antitrust scrutiny. This deal, which reportedly brought in over $20 billion annually for Apple, has long been a critical factor in both Google’s dominance in the search market and Apple’s financial performance.
Earlier this year, court filings revealed the immense scale of the agreement, with Google paying Apple $20 billion in 2022 to ensure its search engine remained the default choice on the Safari browser. These payments accounted for a staggering 17.5% of Apple’s operating income in 2020, underscoring their importance. In August, the legal landscape shifted dramatically when a federal judge ruled that Google holds an illegal monopoly in the search engine market. The DOJ has since indicated it will propose measures to end these types of payments, arguing they unfairly entrench Google’s market dominance.
If the DOJ’s proposals are adopted, the longstanding partnership between Google and Apple could be terminated. This would leave Apple searching for a new default search provider. Microsoft’s Bing, which briefly served as the default search engine for Apple’s Siri and Spotlight from 2013 to 2017, could emerge as a potential replacement. However, it remains unclear whether Microsoft or other rivals would be able—or willing—to match Google’s financial contributions.
For Google, the stakes are high. The company has already announced plans to appeal the ruling, with CEO Sundar Pichai cautioning that the DOJ’s proposals could have “unintended consequences” for consumers and developers. Lee-Anne Mulholland, Google’s vice president of regulatory affairs, has also criticized the government’s approach, suggesting it could stifle American technological innovation.
Despite these legal challenges, the market remains optimistic about Alphabet’s performance. Analysts, including JPMorgan’s Doug Anmuth, believe the resolution of these antitrust concerns could provide much-needed clarity for investors. Anmuth continues to rate Alphabet’s stock as “Overweight,” with a price target of $212, representing a potential 20% upside.
Meanwhile, Alphabet’s shares have shown resilience. On Tuesday, the company’s Class A and Class C shares closed higher, with slight gains continuing in pre-market trading. Apple’s shares have also remained relatively stable, though they experienced minor fluctuations ahead of the DOJ’s anticipated proposals on November 20.
This antitrust battle could mark a pivotal moment in the tech industry, ending one of the most lucrative partnerships in Silicon Valley and reshaping the competitive dynamics of the search engine market.
While Google fights to maintain its dominant position, the outcome of this case could open new doors for competitors like Microsoft and redefine the future of default search engine agreements.
