Google’s antitrust judgment: what’s at stake for Apple?

Google was found guilty on Monday of abusing monopoly power to maintain its dominance in the search engine market. The lawsuit, brought against Google in 2020 by the Department of Justice and several state Attorneys General, primarily focuses on Google’s pursuit of default status, pre-install agreements, and other avenues of preferential treatment. I won’t provide an overview of the case here; Marketecture and Stratechery both provide helpful and edifying analysis.

One of the considerations in the suit was Google’s set of agreements with various browsers to serve as the default search engine provider for them. The most prominent of these agreements was with Apple. Google pays Apple a share of all revenue generated from search queries performed from the Safari browser, where Google’s search engine is used by default. Per Bloomberg, in 2022, this revenue share amounted to $20BN, or roughly 25% of Apple’s entire Services revenue (the segment under which this payment is booked) and 20% of Apple’s net income for that year.

While the judgment against Google will have a range of consequences on the company’s operations, it’s interesting to consider how it will impact Apple. At first blush, the $20BN number — to which most analysis on this subject is anchored — seems like a good place to start such an investigation. But the reality is that $20BN is less than Apple makes, in total, from selling default search status, and it’s less than Google pays, in total, from buying default search status.

As I discuss in Search defaults and the economics of search advertising revenue sharing, an inquiry into default search status agreements conducted by the UK’s Competition and Markets Authority (CMA) in 2020 reveals some intriguing details about Apple’s agreements with various search engine providers as well as Google’s agreements with other browsers. One such detail is that Microsoft pays Apple to be a “secondary option” within the search engine default settings — meaning, when a user determines to change their default search engine and enters the settings screen to do so, Bing is included in the list of available options presented as a result of Microsoft’s payment to Apple. So are Yahoo! Search and DuckDuckGo. So not only does Apple receive payment from Google on a revenue share basis for anointing it as the default search engine for Safari, but it also receives payments from other companies for the privilege of being included as possible default options should a user want to change their default search engine.

5/ Based on Microsoft's own modeling, even if Microsoft offered a 100% revenue share to Apple in exchange for default status (remember: this arrangement is priced in terms of % revenue, not a fixed fee!), Google could still outbid it. Entirely a function of performance. pic.twitter.com/rQVJr4mmdR

— Eric Seufert (@eric_seufert) October 31, 2023

A second such detail is that Microsoft apparently determined through a modeling exercise that, even if it were to offer Apple 100% of the revenue generated from Bing searches from Safari were it the primary default search engine for that browser, it still wouldn’t be able to match the dollar value of Google’s payments. The inquiry also notes that Firefox abandoned Google as its default search engine in 2014 in favor of Yahoo! but reverted back to Google three years later because the arrangement with Yahoo! was less lucrative. In 2021, revenue share payments from Google amounted to 83% of Mozilla’s revenue.

From these details, it’s clear that:

• Browsers choose Google as the primary default search engine status because it pays the most;
• Google’s payments to the various browsers with which it has reached agreements are material as a proportion of their total revenue or margin.

Back to Apple: while the remedy phase of the trial may be protracted, my assumption is that Google will no longer be able to enter into primary search default agreements with browsers if this ruling is upheld upon appeal. Assuming that the judgment stands, the next relevant question pertaining to remedies is whether any search engine will be able to negotiate for primary search default status. The implications for Apple in either case are meaningful:

• If only Google is prevented from attaining primary search default status, then Apple loses whatever the difference is between what Google pays now and what Microsoft (or some other search engine operator) can offer to beat all other bids for the position. This is likely a material amount of money, but it’s not the entirety of Google’s current payment. However, Apple would also lose whatever the new winner of the primary default search engine would have otherwise paid for secondary status;
• If all search engines are prevented from attaining primary search default status, then Apple loses the entirety of Google’s current default payment and, very likely, all payments for secondary status. This outcome could be the case if the judge determines that a browser must expose a choice screen for the browser default, similar to what is now enforced in the EU under the DMA.

It’s important to note that, while Apple is likely to see diminished revenue from selling primary and secondary search default positioning, Google may only be minimally impacted. Early results from the browser choice screen in the DMA imply that the adoption of alternative browsers may be minimal. Brave, for instance, revealed that its daily installs jumped from 7,000 to 14,000 per day on iOS in the EU after the choice screen was rolled out — a substantial increase on a percentage basis but likely not a threat to Chrome or Safari. And while Apple may lose the entirety of Google’s current primary search default payment if it’s unable to charge search vendors for that status going forward, Google may only see a slight decline in the number of search queries from Safari — while being allowed to keep 100% of the revenue generated from them.