A U.S. federal judge ruled on Monday that Google (NASDAQ:GOOGL) breached US antitrust laws with its search business, marking a significant setback for the tech giant.
“After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly,” said US District Judge Amit Mehta in the opinion.
“It has violated Section 2 of the Sherman Act,” he added.
The court determined that Google’s exclusive agreements have blocked a significant portion of the market, allowing the company to charge excessively high prices for text advertisements and limiting the advertising revenue of its competitors.
Analysts at Rosenblatt commented that this decision could jeopardize a search deal estimated to generate $25 billion in fees for Apple (AAPL) this year, which constitutes nearly 20% of Apple's operating income.
“If this decision stands -- a BIG if -- the answer for Apple could be a pivot to AI Search, in our view,” the analysts said in a note.
Rosenblatt notes the risk for Apple lies in the potential reduction of payments from Google if the company abandons exclusivity. Even a slight loss in default selections and search volume could significantly diminish Google's payments to Apple.
In the current search landscape, no competitor matches Google’s dominance, analysts emphasize. However, in the emerging generation of search incorporating Generative AI, other substantial competitors, notably Microsoft’s (MSFT) Bing in collaboration with OpenAI, could pose a significant challenge.
"While Google's payments to Apple are rich, the fattest fees to platforms come when services are in stiff competition with each other," the analysts observed. They also pointed out that Microsoft (NASDAQ:MSFT)'s increasing investment in AI infrastructure could lead to a more compelling business case for Apple to consider boosting Microsoft’s search share.
"This might be a generationally unique moment for Apple to help build a more meaningful rival to Google," the analysts continued, "and extract fees from both that could be better than those from Google alone now because the market would be more competitive, and de-risked to Apple because there would be multiple viable providers of a key capability."
Apple shares (NASDAQ:AAPL) fell 1.8% in premarket trading.