Google Will Be Hard Habit to Break

There are ways the government can hurt Google. Blowing up the company’s deal with

Apple Inc.


AAPL 3.75%

might not be one of them.

The Justice Department has been meeting in recent days with state attorneys general to map out a course for pursuing an antitrust case against the internet-search company owned by

Alphabet Inc.


GOOG 1.17%

The outcome remains highly uncertain given the charged political environment. The Wall Street Journal reports that not everyone is on board with the speed at which U.S. Attorney General William Barr wants to move.

The scope of the case is also a big question. The New York Times reports that a major focus of the Justice Department is search agreements Google strikes with companies such as Apple. That particular deal makes Google the default search engine on the Safari web browser shipped with every Apple device. Neither company has ever disclosed details of the arrangement, but it has been in place for years.

Its scale was first revealed through filings in a trial between Google and software giant

Oracle

in 2016 which revealed that Google had paid Apple $1 billion two years prior for the access.

That is believed to have grown substantially since. Bernstein analysts estimate that Google now pays around $8 billion to Apple annually, while

Goldman Sachs

puts the number at about 25% of Apple’s total services revenue—which would amount to a little less than $13 billion for the trailing 12-month period ended June. Even the smaller figure would represent more than one quarter of the total traffic acquisition costs Google reported for that period.

Hence, ending these sorts of exclusivity deals could bring a substantial boost to Google’s bottom line—at least in the short term. It also could hurt Apple’s profit since the licensing revenue that Apple recognizes from Google is widely estimated to be almost pure profit. Even Bernstein’s lower $8 billion estimate equates to about 12% of Apple’s projected operating profit for the fiscal year ending this month.

Less clear is how it might affect Google’s top line. The deal with Apple gives it easy access to an installed base of more than 1.5 billion users accustomed to paying up for premium products. But many of those would likely be using Google anyway. The company’s Chrome web browser is used on two-thirds of the world’s computers, smartphones and tablets, and Google has long handled more than 90% of web search activity across all device types, according to StatCounter.

Google continues to hold a 97% share of web search on smartphones and tablets in Europe. That has remained unchanged since the company implemented a “choice screen” early this year on new Android devices sold in that market. That move, which allows users to pick their own default search engine, was part of a deal struck with European Union regulators who levied a $5 billion antitrust ruling against the company in 2018.

A recent survey by Morgan Stanley found that 50% of

Amazon

Prime members in the U.S. start researching products on Google first—even though they are paying more than $100 a year to effectively make Amazon their first stop in online shopping.

Essentially, when given the choice, users are still picking Google. That isn’t surprising since the company has had two decades to cement its image as the internet’s starting point. Even dictionaries have included Google as a verb since 2006. Regulators might have legitimate concerns about Google’s dominance in search, but there is little they can do if consumers use it anyway.

Write to Dan Gallagher at dan.gallagher@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8


Source link