Google pays Apple between $18 billion to $20 billion a year to remain the dominant search engine in the iPhone, according to a financial analyst that thinks this deal, and others like it, are now at risk.

Bernstein, which advises institutional investors on where to place their bets, yesterday published a report looking into the potential implications for Apple of the civil antitrust suit the Department of Justice (DoJ) is currently waging against Google in Washington over claims it monopolizes search and search advertising.

One of the major interest areas in the case, which started last month, is the Information Services Agreement (ISA) between Apple and Google. In the trial it is being highlighted as one of the primary examples of anticompetitive behavior.

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"We believe there is a possibility that federal courts rule against Google and force it to terminate its search deal with Apple," said Bernstein in the report sent to The Register . "We estimate that the ISA is worth $18B-20B in annual payments from Google to Apple, accounting for 14-16 percent of Apple's annual operating profits."

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Experts agree there is a chance Google could lose the case and thereby the lucrative arrangement with Apple, as well as similar ones with Samsung, Mozilla, is unlikely to survive.

Apple gives limited information on the sub-segments in its Services division, yet Google reports the money it sends to Apple under its traffic acquisition costs (TAC) to distribution partners. Bernstein says Google pays out 22 percent of total ad revenue on TAC and estimates Apple likely receives around 40 percent of this.

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The DoJ itself said in the trial that it thinks Apple pockets around $10 billion from the ISA with Google but its numbers come from external sources – ie, not Apple or Google – the Wall Street analyst says in its report.

[5]US Department of Justice claims Google bought its way to web search dominance

[6]Google on trial: Feds challenge deals that set your web search defaults

[7]Microsoft CEO whinges about Google's default search deals

[8]Google settles another Play Store antitrust case

A ruling in the Google antitrust case isn't imminent; it'll be more likely 2024 before that happens, and then of course there is the lengthy appeals process which can be expected to extend proceedings. Yet the economic impact on Apple is "unlikely to be onerous."

"Importantly, Google is on trial, not Apple, and Apple could (in theory) partner with another search engine to be the default (and/or retain the agreement with Google outside the US)," the report states. "One more likely scenario is that Apple offers a choice screen. We note that Apple controls access to its installed base, which generates ~$60B + in advertising revenues, and accordingly, we believe that Apple would continue to command a commission (in the 25-30 percent range) for providing access to those search advertising revenues.

"Moreover, introduction of a choice screen could offer Apple the opportunity to potentially launch its own search engine as an option – something it could likely not do today without raising the eyebrows of regulators," the Bernstein report adds.

The case continues. ®

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[5] https://www.theregister.com/2023/09/13/google_search_antitrust_trial/

[6] https://www.theregister.com/2023/09/20/google_on_trial_feds_challenge/

[7] https://www.theregister.com/2023/10/03/microsoft_ceo_complains_about_googles/

[8] https://www.theregister.com/2023/09/06/google_settles_another_play_store/

[9] https://whitepapers.theregister.com/