Advertisement
The U.S. Justice Department sues Google for its anticompetitive tactics to preserve a monopoly for its search engine. But the suit will probably bring a heavy blow to another technology giant, Apple, as the profit of the deal between the two companies accounts for one fifth of Apple’s total profit.
The Justice Department filed an antitrust lawsuit against Google last week, and the key of the case is the deal between the two companies that is worth billions of dollars. And through the deal, Google Search became the default iOS search engine. This deal plays an important role in Apple’s service business, as service business contributed the most to Apple’s growth in the past few years.
Prosecutors claim that the deal is representative of illegal tactics used to protect Google’s monopoly and stifle competition, while Google denied. For Apple, it’s a deal of great business value, as it involves more than a billion users and devices all over the world. According to the analysts and investors, although the accusation is not clear yet, losing the partnership will be a great damage to Apple, since one fifth of Apple’s profit comes from the deal.
Toni Saccoaghi, analyst of Bernstein said, “If you analyze carefully, you will find that Apple is suffering from a greater financial risk than Google.” He estimated that Apple’s stock price will drop by up to 20% if the deal is completely cancelled. On the other hand, some people believe that Apple could minimize its loss by offsetting the loss with other deals concerning Google and Google’s competitors.
Last week, when the Justice Department accused Google of monopoly, investors show no worries, and the stock price of Apple was still rising.
According to Mark Stoeckle, CEO of Adams Funds, who lists Apple as their main investment target, judgement of the case will probably last for a long time. And he doubted that Google’s tactics show no difference with some companies’ behavior of paying the supermarkets for putting their products in an eye-catching place. As he mentioned in his email, cancelling the deal will have some damage to Apple for sure, while he regarded it as a controllable risk.
Advertisement
Apple refused Justice Department’s request to comment on the suit, and the Justice Department accused Apple for nothing. At the same time, Google rebutted the basis of the lawsuit, arguing that consumers use their products because it’s the best, and they can easily use other products besides its own.
Last week, Kent Walker, Chief Legal Officer of Google, commented in his blog, “Our agreements with Apple and other device makers and carriers are no different from the agreements that many other companies have traditionally used to distribute software.”
The two companies reached the agreement in 2005, and Google Search Engine became the default search engine of Safari. The Steve Jobs was the CEO of Apple at that time. According to the Department of Justice, the scale of the deal was enlarged after the launch of iPhone, two years later.
Details of the agreement remains a secret to the public, and the information that Google is paying Apple a large amount of money, was revealed to the public in an unrelated lawsuit in 2016. In the court in 2016, the two companies mentioned that as a part of the agreement, Apple received a billion dollars from Google in 2014.
According to analysts, the amount of the payment increased in a large scale since 2014, but the specific amount differed every year. The Justice Department pointed out that the annual amounts ranged from 8 billion to 12 billion, which accounted for 15% to 20% of Apple’s profit.
Apple mentioned, up to September, 2019, their profit of the fiscal year is 55.26 billion dollars, which is estimated to increase slightly compared with last year. And the company is going to release its report this Thursday.
Google will also face considerable risk if the prosecution from Justice Department end their deal. It is reported that nearly half of Google Search’s traffic comes from Apple devices. Analysts including Sacconaghi estimated, Apple may take over DuckDuckGo to expand its search service, and compete for more advertisement revenue. DuckDuckGo is a small search engine that emphasizes on privacy protection like Apple. It seems that all those moves will bring Google a powerful potential competitor. At present, Google is in an overwhelming leading place at the field of search engine, its competitors include Microsoft Bing, DuckDuckGo and so forth.
