The DoJ’s push to punish Google in the first of what’s expected to be a flurry of civil actions against the Big Tech players could have seriously negative repercussions for a third party: Apple.

As the Wall Street Journal highlighted in a recent story highlighting commentary and research recently produced by Toni Sacconaghi, a longtime tech analyst at A.B. Bernstein, Apple and Google have a special link – and it’s one of the elements of Google’s business that’s come under the microscope as a key element of the government’s case.

The government says Google’s arrangement to pay Apple billions of dollars to set Google’s search engine as its default has been essential in maintaining its market dominance, and preventing another rival search engine from rising up to challenge Google.

“There’s a risk, if you play it out, that there actually could be more financial impact to Apple than there is for Google,” said Toni Sacconaghi, an analyst for Bernstein. He estimates that Apple’s stock could fall as much as 20% if the deal with Google were to be eliminated entirely. At the same time, he and others say, any damage could be far less if Apple is able to offset it through other deals involving Google and its competitors, as many investors and analysts say could happen.

The two companies first struck a deal in 2005, when Steve Jobs was still Apple’s CEO, to make Google the default in Apple’s Safari web browser on Mac computers. The deal expanded with the arrival of the iPhone two years later, according to the government’s lawsuit.

But back in 2016, details about the agreement were revealed in an unrelated court battle. It showed Apple received a cool $1 billion in 2014 as part of the deal to default its products to Google’s search engine. When the deal was first struck in 2005, back when Steve Jobs was still CEO, Google paid Apple to default Safari to Google’s search engine. That default setting was later included on iPhones, iPads etc. At that time, Apple booked nearly $200 billion in sales during the 2014 fiscal year.

While $1 billion back then might not have seemed like such a large chunk, Wall Street analysts believe the amount Google has been paying Apple for the privilege has likely expanded significantly, with some projecting that Google might be paying as much as $12 billion annually for the arrangement across all of Apple’s products and services. 

Since the costs associated with licensing something like a default browser setting are negligible for the company that controls the browser and the devices, losing out on $12 billion in pure profit would be equivalent to a 20% hit to annual profits (Apple reported $55.26 billion in profits for fiscal 2019).

With so many close links between Google and Apple, disrupting this relationship could also hurt Apple’s service business in other ways, but as another analyst pointed out, there’s more than enough standing to argue that what Apple and Google are doing is no different than every supermarket’s relationship with the brands that it sells.

Apple is expected to report its fiscal 2020 results Thursday. We suspect Tim Cook & Co, will have some more to say about the DoJ/State AG legal antitrust push, which threatens to upend the big tech status quo.

Of course, as Sacconaghi points out, Google has just as much to lose. Should the arrangement unravel, Apple could scoop up a small competitior, say DuckDuckGo, and start to muscle in on Google’s search traffic, which supplies much of the data that the company repackages for resale to its clients.

As far as American courts are concerned, this isn’t the first time a lawsuit or civil action has exposed collusion between the biggest American tech firms in the area of personnel (informal no-poaching agreements). It’s reasonable to expect that while Apple, Amazon, Google and Facebook are nominally “competitors”, when it comes to this antitrust action, they’re all in the same boat.



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