Last week, the US Justice Department filed an antitrust lawsuit against Google. It claims that the tech giant created and abused its “illegal monopoly” in search and advertising markets by signing exclusive deals and using anticompetitive practices to lock out its competitors.
One of the biggest examples of Google’s anticompetitive practices that are being highlighted is the deal it made with Apple to keep Google as the default search engine on Apple devices like iPhones, iPads, or Macbook.
This agreement was updated in 2017, and now, The New York Times reports that Google pays $8 to 12 billion to Apple in exchange for keeping Google’s search engine as the pre-selected option.
Why This Deal Is Important For Both Google And Apple?
Apparently, this huge sum paid by Google makes up for about 14 to 21% of Apple’s annual profits — one that the Cupertino giant would definitely not like to lose.
It is estimated that almost 50% of Google’s search traffic now comes from Apple devices. So the idea of losing this deal with Apple has been described as “terrifying” and a “code red” scenario within Google since search traffic is the centerpiece of its ad-based revenue system.
Meanwhile, Apple is also bound to face the heat because it facilitated such anticompetitive behavior by agreeing to the deal and going up to the extent of harvesting more money with regular renegotiations with Google.
Even though the two companies are competitors in Silicon Valley, prosecutors say that this “unlikely union of rivals” represents the illegal tactics used to unfairly prevent smaller companies from flourishing.
So, the Justice Department is seeking a court injunction which would prevent Google from making such deals with Apple — arguing that this is what helped Google to unfairly gain hold of 92% of the world’s internet searches.
Google has always argued that it dominates internet search not because it is buying customers but because consumers prefer it. On its partnership with Apple, the search giant says that it is “no different than Coca-Cola paying a supermarket for prominent shelf space.”
Nevertheless, a forced breakup of the search giant would result in a heavy loss of easy money for Apple. But more than that, it means a significant loss of traffic for Google, with no obvious or easy ways to replace it.
Meanwhile, it could also push Apple to acquire or build a search engine of its own. Given the kind of search engine Google has created, Apple is among the handful of companies that might be able to provide a suitable alternative to Google.