- Google and Apple’s $12 billion search engine exclusivity agreement could end due to the current anti-trust case against Google.
- This has lead Apple to make efforts to develop and push its own search engine on its users.
- In the long term, Apple could stand to win big from this. We estimated yearly revenues of around $50 billion.
- This idea was discussed in more depth with members of my private investing community, Macro Trading Factory. Get started today »
How the DOJ probe on Google affects Apple
While the current antitrust investigations on tech giants’ anti-competitive behavior have put the limelight on Alphabet Inc. (GOOG)(NASDAQ:GOOGL) and Facebook Inc. (FB), little has been said of how the outcome affects other companies that operate in close competition.
Apple Inc. (AAPL) could be a short-term loser but potentially a long-term winner from these proceedings. Apple will lose out on the revenues it receives from Google, but will in turn have an opportunity to enter the lucrative market of search engine advertising. Overall, I believe this is a compelling reason to add (more) Apple to your portfolio.
To begin with, let’s revise some of the key points of the ongoing antitrust investigation against Google:
- Entering into exclusivity agreements that forbid preinstallation of any competing search service.
- Entering into tying and other arrangements that force preinstallation of its search applications in prime locations on mobile devices and make them undeletable, regardless of consumer preference.
- Entering into long-term agreements with Apple that require Google to be the default – and de facto exclusive – general search engine on Apple’s popular Safari browser and other Apple search tools.
- Generally using monopoly profits to buy preferential treatment for its search engine on devices, web browsers, and other search access points, creating a continuous and self-reinforcing cycle of monopolization.
Source: justice.gov
As we can see, Apple was expressly mentioned by the DOJ for having an exclusivity agreement with Google, which pays Apple up to $12 billion annually to be the de facto search engine on their devices. This agreement has worked very well in the past, and bear in mind, $12 billion is over ⅕ of Apple’s total earnings.
