Google's antitrust loss is set to shake up the online search market while also marking a major victory for government regulators. Here are the ramifications to watch.
Alphabet's Google was ruled by a federal judge to have maintained a monopoly in search and text advertising via its exclusive distribution agreements. Google is now set to appeal, which means the process could drag on for years.
That delay might account for why Alphabet stock was up 1.3% in Tuesday trading, having fallen 4.5% on Monday. However, unless the ruling is overturned on appeal, it seems likely Google will have to change at least some of the practices that have made it the world's dominant search engine.
The most obvious remedy would be for Google to be blocked from its current approach of paying to be the default search engine on devices and browsers from companies such as Apple and Samsung.
Google estimated that if it wasn't the default search engine on Apple's browser devices, it would lose between 60% and 80% of queries on iPhones and iPads, resulting in net revenue losses of up to $32.7 billion, in an analysis performed in 2020, according to filings in the court case.
"We believe the trial will now move to a remedy discovery phase that will determine what Google needs to change and whether punitive fines, if any, will be imposed...We believe the Judge's decision is negative for Google, & the best outcome would have been preserving the status quo, " wrote J.P. Morgan analyst Doug Anmuth in a research note.
Anmuth has an Overweight rating and $208 target price on Alphabet stock.
Apple
If Google is forced to change its tactics, then Apple will lose out in the short term at least. In 2022, Google paid Apple about $20 billion to be the default search engine on the iPhone and in the Safari internet browser.
One option that has been repeatedly speculated about over the years is Apple developing its own search engine, thus capturing all the associated advertising revenue for itself. However, according to court filings, Google estimated that Apple would need to spend roughly $20 billion upfront to build infrastructure to make a competitive search engine, plus billions more annually.
A less costly approach -- and one that Apple already looks to be exploring -- would be to see whether artificial intelligence could at least partially replace Google on its devices. Apple has already unveiled a partnership with OpenAI to make ChatGPT available on its devices, as well as planning to make Google's Gemini chatbot available through its Apple Intelligence service. Apple reportedly would get a cut from revenue generated for such AI services via its devices.
Apple shares were down 2.1% in Tuesday trading.
Microsoft
The clearest beneficiary from any forced changes at Google is Microsoft and its Bing search engine, currently a distant second place in the market.
Microsoft has said that every percentage point of market-share gain in the search-engine market is equivalent to a $2 billion annual revenue opportunity in advertising. Google currently has a 91% market share, with Bing having close to 4%, according to data provider Statcounter GlobalStats.
There's no guarantee that Google not being the default search engine on various browsers and devices would cause a flood of users moving to Bing. However, it would certainly open up more of an opportunity to gain a foothold in the market.
Microsoft could also benefit if its investee company OpenAI gains more traction with its own version of a search engine, which it announced last month.
Microsoft shares were up 1.6% in Tuesday trading.
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