Apple’s Search Deal Is Critical to Google. The Courts May Rule It Illegal

The fifth week of the monumental U.S. vs. Google antitrust trial has cast a glaring spotlight on the revenue-sharing deal between Google and Apple—worth a reported $10 billion—over the latter’s position as the default search engine.

Now, the legal basis for that deal is being questioned.

If the courts find it illegal, Google’s massive search ad revenues could be up for grabs.

Also at stake is the possible separation of Google’s search ads business from its search engine, which would lead to ad revenue opportunities for other companies, including Apple. Meanwhile, publishers and advertisers could sue Google for damages.

Here’s what’s critical for marketers.

Apple’s leverage with Google

Earlier this week, Joan Braddi, Google’s vp for product partnerships and the primary negotiator of the agreement with Apple, faced scrutiny by the Department of Justice and shed some light on the intricate relationship between these tech giants regarding search, reported The Verge.

“Would I be correct that, at least today, Apple has a lot of leverage in its negotiations with Google?” inquired Adam Severt, a DOJ attorney.

In response, Braddi offered a succinct affirmation: “Yes.”

“Can you think of another search partner who might have more leverage than Apple?” Severt followed up.

With equal brevity, Braddi responded, “Not offhand, no.”

How we got here

Over the last two decades, Google has maintained its coveted position as the default search engine on Apple’s Safari browser, a partnership that traces its origins back to the browser’s launch in 2003. This pricey revenue-sharing deal prevents people from making their own choice of browser while obstructing Apple’s development of its own search product.

Apple has a global mobile iOS market share of 29.6%, according to September stats from Global Stats Counter, making Safari critical for Google, an industry executive who’s not authorized to speak to the press told Adweek. Google’s Android global market share is 69.7%.

In the U.S., Apple smartphones have a 56.41% share of the market, according to September figures from Global Stats Counter.

Being the default search engine attracts more people, helping Google grow its search ads business. The tech giant made more than $162 billion from its search business last year, according to Oberlo.

The DOJ disclosed that Apple had plans to provide people with a choice screen, allowing them to pick between Google and Yahoo as their preferred search engine. However, Google rejected Apple’s proposition, it was revealed in the case, responding with the statement, “No default placement, no revenue share,” according to an email.

Google’s search ads revenue up for grabs

A realistic outcome is that the judge could deem it unlawful for Google to pay Apple to have its search engine as the default in Safari, according to Eric Posner, professor of law at the University of Chicago and former counsel to the DOJ’s Jonathan Kanter—the architect of the case against Google.

If that happens, Google will lose its search spend from marketers, the industry executive said.

Retail giants spend up to $50 million annually on paid search in Google Ads, according to Wordstream, while small and medium-size businesses spend anywhere between $12,000 to $120,000 per year.

Search ads are “mandatory” in any ad campaign and cannot be replaced by other digital ads offerings like Facebook ads, said Joshua Lowcock, global chief media officer at UM, in his court testimony last week, wrote Yosef Weitzman in Big Tech on Trial. This statement contradicts claims made by Google in court.

The nullifying of the deal would require Apple to offer people a more explicit menu of search engine options, helping them make an informed choice, Posner said this week at Impact, adMarketplace’s annual search ads event in New York City.

During the trial, both Apple and Google argued that changing the default search engine is a straightforward process, with Apple’s Eddy Cue providing a step-by-step process during his testimony. The DOJ and other parties countered that this switch is difficult and irrelevant, per the Verge.

Separating search ads from its search engine

Another outcome, according to Adam Epstein, president and COO of adMarketplace, is the breaking up and selling off of Google’s search ads business from its search engine.

This would let competing advertisers vie for space, fostering increased competition in search ads, he said.

“Apple—the second most powerful hub in the world—have never been able to sell a single click from their search result page,” said Epstein. “This could potentially give Apple the ability to sell ad space to marketers and establish pricing based on market dynamics.”

Marketers can redeem damages

Should the court issue a judgment that’s not in favor of Google, marketers—and the general public—can pursue what Posner termed as “equitable remedies.”

“There’s very likely to be follow-on private litigation by people who have been harmed by Google’s behavior, which may be you guys, where you can ask for damages or how much money you’ve lost as a result of Google’s anti-competitive practices,” said Posner.

Follow-up cases of this nature tend to be much simpler, Posner pointed out, where plaintiffs, advertisers and publishers will only need to demonstrate that Google’s unlawful conduct caused harm to them.