Why Apple plummeted by Google antitrust ruled a monopoly?

Table of Contents

A brief overview of Google antitrust case

Judgment content

On August 5, 2024, in a 286-page judgment, the U.S. Federal Court decided to support the Department of Justice’s claim and determined that Google paid fees to operating system operators to make the Google search engine the system browser default setting. behavior violated antitrust laws. This is also the first time the U.S. government has won a major antitrust case in more than two decades. Of course, Google has also made it clear that it will appeal.

It is unclear what the subsequent penalties will be

“Google’s ‘search engine’ business was found to have violated antitrust laws, but the ruling did not include any ‘remedial or punitive’ measures for the behavior.” This means that it is unclear how the U.S. Department of Justice will implement the ruling. Whether it can be implemented for the global market; the impact on Google’s future business has yet to be completed.

Google has long been judged to be a monopoly out of US

Due to its vast range of products and services, it is no longer news that Google has been judged to be a monopoly outside the United States.

Google’s presence in major countries around the world such as Europe, China, Japan, Germany, the United Kingdom, Russia, South Korea, Australia, India, and Turkey has previously been affected by various differences in search engines, mobile operating systems, mobile app stores, payments, etc. The company has committed monopolistic behavior on products or services; and has been judged, is being investigated, or fined.

Note: For a detailed discussion of Google’s vast product line and services, see my post of “Consider Alphabet if you can buy one stock only to retire from it? “

Apple hitted hard

Apple suffers from this case

The day after the news was confirmed, Apple’s stock price closed down 3% that day, a decline far greater than Alphabet’s drop of 2.8%. Why? (Please note: U.S. technology stocks all closed with sharp gains that day)

Google spent huge

Court documents show that in the past ten years, the fees paid by Google have increased from billions of dollars to more than 26 billion U.S. dollars, the vast majority of which has been paid to Apple. Taking 2022 as an example, Google will pay Apple more than 26 billion U.S. dollars. It cost $20 billion to buy the default search engine position in Safari browser.

Account for one-fifth of Apple’s net profit

During the trial of this case, a Google witness inadvertently revealed that Google and Apple agreed that 36% of the money earned from search advertising on Apple devices must be returned to Apple. This probably explains why the money has grown so rapidly in recent years. Apple’s current annual revenue is approximately US$380 billion, and its net profit is approximately US$100 billion. Therefore, this expense accounts for one-fifth of Apple’s total annual net profit. Please note that this is net profit!

Worst-case scenario for Apple

Morgan Stanley said that as its key partner, Apple may lose as much as US$20 billion in high net profit income per year. Even if it is believed that Apple will find a solution to offset the potential losses caused by the exclusive payment, it is expected that this judgment may cause a 4-6% hit to Apple’s earnings per share in 2026.

Apple’s dominance proved, again

The key to Google being found guilty of antitrust: the act of paying operating system operators to make the Google search engine the default setting of the system’s browser. Apple alone took away 77% of the $26 billion!

But the question is why Google is willing to give 77% of the fee to Apple?

Apple itself has announced: In the fourth quarter of 2023, Apple’s active device installations have exceeded 2.2 billion.
The Internet traffic, advertising, shopping, and spending power generated by users of Apple devices is much greater than that of other non-Apple devices.

This once again proves the dominance of Apple’s ecosystem!

Note 1: The technical term for this expense supported by Google is called Traffic Acquisition Costs (TAC), which is Google’s main operating expense. The New York Times revealed: In 2022, Google’s annual traffic acquisition cost will be US$300, with a compound annual growth rate of 18% in the past five years.

Note 2: This fee paid by Google is included in the revenue of its service business by Apple, account for 25% of service revenue. This is one of the main reasons why Apple’s service business annual revenue can hit new highs again and again, and it is adjusted every year.

Similar case: Microsoft

How is it different from the Microsoft case?

The search engine at the center of this case is the core of Google. Almost all of the company’s products and services are deeply bound. If it is required to be split, execution will be extremely difficult-this is similar to Microsoft’s at the end of the last century. Monopoly cases are fundamentally different.

Because Microsoft was not as large as it is today, its product line at that time was mainly based on the suite of software Office and the operating system Windows, plus server software and development tools; the degree of integration and binding between them was not large, and it was necessary to implement Splitting is easy.

Follow-up observations

Since the court’s current ruling on Google’s monopolistic behavior does not specify any penalties, the follow-up of the case remains to be determined. Including the following most important aspects:

Will it force search engines to be spun off from Google?
Will Google’s current business model be required to change?

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