Why Apple Might Lose The US Government’s War On Google
On October 20, the United States government filed an antitrust lawsuit against Google. One question is: was that really for abuses of antitrust law, or was it just about politics and scoring points in the U.S. national election?
And, is Apple actually be the biggest potential casualty in an antitrust battle between the U.S. government and Google?
“I think there’s been a consensus now for a while on both the left and the right, that companies like Google and Facebook have too much power in the marketplace,” Greg Sterling, VP of insights for Uberall, told me recently on the TechFirst podcast. “Also, there is a political element. I think that Trump wanted to show he was being tough on tech before the U.S. election, and I do think there’s kind of a grudge on the part of many right-wing legislators that these companies are in the pocket of the left.”
Sterling is a former lawyer and journalist focusing on local search, and Uberall is in that all-to-familiar position for many companies in the marketing space: both working with and fighting against Google as tides of what Google does ebb and flow.
One challenge, of course, is that the U.S. government is using 130-year-old law as the foundation of its case against arguably the most sophisticated high-tech corporation on the planet. The Sherman Antitrust Act of 1890 was enacted to fight collusion and anticompetitive business behavior in an era when railroads were the pinnacle of innovation. How businesses work, and how competition happens today is vastly different. So are economies of scale and the marginal cost of additional uses of what is essentially software.
Listen to the interview behind this story on TechFirst:
Another challenge is that the Sherman Act is explicitly not about business versus business competition, as the Supreme Court ruled in 1993, saying that “the purpose of the Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market.” And it’s hard to argue that consumers are hurt by Google’s scale.
“The consumer harm part of it is pretty hard to prove right now … consumers do choose Google, they do prefer Google,” says Sterling. “But at the same time, Google has used some of these mechanisms to ensure that others don’t have the same kind of access to distribution that they have.”
Perhaps more interesting is what companies might actually lose from the antitrust action. Google itself, much like Microsoft a generation ago, will likely emerge with a slap on the wrist and a big bill to Uncle Sam.
But Apple might get bruised the worst.
The focal point: the $8-12 billion Google pays Apple to be the default search engine on iPhones and Macs.
“I mean, the irony with the Apple relationship is, you know, we saw the revelation that a huge chunk of Apple service’s revenue is coming from Google,” Sterling says. “So if the government were to demand or get a concession that that relationship end — the pay-to-play scenario — I think it wouldn’t have much of an impact on Google and Google usage. I think it hurts Apple much more than it hurts Google, and people would go right back — as Google points out, with Mozilla and Yahoo — and re-install Google, and put Google on there.”
Apple’s big story to the press and financial communities lately has been its great performance in expanding services revenue. Services revenue from products like Apple Music, News+, the company’s soon-to-arrive Fitness+ and other products make Apple less dependent on consumers buying yet another $1000+ iPhone every single year.
In Apple’s most recent financial statements, the company says it made $18.3 billion in services revenue for the 12 months ending in September 2020.
The recent antitrust case filing says that Apple makes $8-12 billion straight from Google in exchange for preferential treatment as the default search partner.
While those numbers are just estimates, they’re likely in the ballpark. The amount for the UK alone was $1.5 billion, according to a UK government report.
If the $8 to $12 billion estimate is accurate, that’s between 44% and 66% of Apple’s total reported services revenue and a significant chunk of Apple’s total revenue. In a word, that’s massive.
Ultimately, the timing of the lawsuit is likely to be political — only 11 state attorneys general joined and they were all from Republican states, Sterling notes — even though there are real issues.
But unless things go really bad for Google, the worst consequences of probably the easiest outcome of the antitrust effort will likely hit Apple hardest. Forcing Google to stop paying for placement is a simple solution, easily enacted. And one that will cost Apple potentially more than Google itself.
Other members of big tech are probably also in the cross hairs, after the dust of the election settles. The most likely target? The big blue social network.
“I would think Facebook would be next,” Sterling says.