Google-Apple Deal on the Edge

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A landmark decision is expected soon from a US federal judge that could upend one of Silicon Valley’s most lucrative deals: Google’s default search engine contracts.

This ruling puts at risk more than US$26 billion in annual payments made by Google’s parent company, Alphabet. Of that amount, US$20 billion goes to Apple. This figure represents nearly a quarter of Alphabet’s operating income.

For decades, the Apple-Google agreement has helped determine who controls the internet—a fact that now makes it a prime target for legal scrutiny.

Last year, US District Judge Amit Mehta found that Google holds a monopoly in search and advertising. Since the trial phase ended in May, he has been weighing potential remedies. Meanwhile, another case targeting Google’s advertising business is set to begin next month under a different judge.

While Google may lose some search traffic and predictability, analysts believe Apple could suffer a greater financial blow. The impact will depend on whether Apple can negotiate new terms and on the scope of the judge’s ruling.

Jefferies analysts note that the judge may ban exclusive contracts but still allow partial payments. Even so, Apple’s pre-tax profits could fall by as much as 7%.

Some economists and Wall Street analysts argue that, in the long run, Google may ultimately benefit—shedding expensive deals that no longer drive demand.