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Google’s ties with Apple under scrutiny in antitrust trial

One of the defining relationships in modern Silicon Valley is the interaction between Apple and Google. For decades the companies have mixed intense competition—Apple Inc. co-founder Steve Jobs once famously threatened to wage “thermonuclear war” on Google over its entry into the smartphone business—with enthusiastic collaboration. Since 2005, Google has paid Apple billions of dollars to be the default search engine on its Safari web browser, a deal that’s brought the two trillion-dollar corporations together in ways that have raised eyebrows in Washington. “Our vision is that we work as if we are one company,” wrote a senior Apple employee to a Google counterpart following a 2018 meeting to help make the pact more profitable.

That message is part of a trove of potentially damning internal communications coming to light as part of the US Department of Justice’s antitrust case against Alphabet Inc.’s Google, where the government accuses the search giant of freezing out competitors through deals like the one it has with Apple. The trial marks the first time since the case against Microsoft Corp. more than two decades ago that allegations of anticompetitive behavior in Silicon Valley will be hashed out in federal court.

The moment marks a new era of trustbusting aimed at the tech sector. The Justice Department has already filed a second antitrust case against Google over its advertising dominance. The Federal Trade Commission, a sister agency that’s been far more aggressive under current chair Lina Khan than at any time in the recent past, is seeking to break up Facebook parent Meta Platforms Inc.; the FTC is also expected to sue Inc. for antitrust violations this month, while a Justice Department probe into Apple could result in another lawsuit later this year.

This first trial, which is scheduled to take 10 weeks, focuses only on Google’s alleged monopolization of the online search market, but if the Justice Department wins, it may seek to break off Alphabet’s search business from other products, Android and Google Maps among them. Such an outcome would be the biggest forced breakup of a US company since AT&T was dismantled in 1984. Regardless of the result, the trial has the potential to be damaging not only to Google but also to business partners such as Apple, whose executives will be compelled to testify and whose emails will be pored over in open court.

The Justice Department and 52 attorneys general representing US states or territories accuse Google of paying billions of dollars to maintain its monopoly over search through agreements with tech rivals, smartphone manufacturers and wireless providers. While Google made a number of these deals, its agreement with Apple looms largest. First forged 18 years ago, it made Google Apple’s default search engine, while giving Apple as much as a 50% share of the ad revenue Google made from searches by users of Apple’s Safari browser. Google rode the wave of Apple’s successes in mobile, and enforcers say it now has a 90% share of the overall search market. At the same time, Apple has pocketed billions of dollars annually from the relationship—an estimated $18 billion in 2022 alone, according to Sanford C. Bernstein & Co. analysts.

The Justice Department’s allegations mirror those made in the Microsoft case from the late 1990s, which centered on that company’s practice of pre-installing its Internet Explorer browser on computers that ran the Windows operating system, then imposing technical obstacles to prevent computer manufacturers or consumers from installing rival web browsers such as Netscape. Google rejects such comparisons. Unlike Microsoft’s browser defaults, Google’s deals do not include any technical barriers that restrict switching to competing browsers, and the process is simple, according to Kent Walker, Alphabet’s chief legal officer. “People don’t use Google search because they have to, they use it because they want to,” he says. Google has likened its search deals to those that cereal companies make with grocery stores for prime shelf space.

The power of default settings in tech has been the subject of significant research. Eric Johnson, a professor at Columbia Business School who studies decision-making, says defaults can significantly affect consumer choices even when the technical barriers to switching are low. In one study, for example, 82% of people agreed to be an organ donor if the “yes” box on the form was prechecked, versus only 42% when “no” was the default choice. “It’s not just the physical effort of clicking or unclicking a button,” says Johnson, who’s spent 30 years researching how the presentation of choices changes consumer behavior. “It’s that mental effort. The crux here is that people don’t really want to think about—or aren’t even aware—that there’s a choice.”

Apple demonstrated this power in 2012, when it switched the default map program on iOS devices to its own maps app, which is widely seen as inferior. Google analyzed how many users it lost from that change, then how much revenue it might lose if Apple switched to a different search engine. That analysis, the Justice Department said last year, inspired Google to re-up its search deal when it expired after 10 years.

A major inspiration for the original partnership, according to Apple executive Eddy Cue, was simply convenience. At the time, Microsoft’s Windows and Internet Explorer were the market leaders, and Apple sought to offer an alternative, introducing its Safari browser with new features including a built-in search bar. “The idea, originally, was to just provide an easy way for customers, if they searched on this field, not to have to type in a URL,” Cue said in a 2022 deposition in the case. “We eliminated that whole middle step.”

When Google and Apple made their deal in 2005, Safari accounted for only 1.3% of the search market. But its share rose with the success of its mobile devices, and by 2014, Google was paying Apple about $1 billion a year for its default status on Safari, according to a figure shared accidentally during a court hearing in an unrelated lawsuit.

Deals in which search engines pay for default status on web browsers and mobile devices aren’t unusual. In addition to Safari, Google is the default search engine on the Firefox browser, developed by the nonprofit organization Mozilla, through a deal that accounted for 83% of Mozilla’s revenue in 2021. Verizon agreed to pre-install Microsoft’s Bing as its default search engine, and AT&T teamed up with Yahoo! Inc. But by 2011, AT&T, Sprint, T-Mobile and Verizon and Sprint entered pacts with Google that would pay them between 15% and 40% of the advertising revenue on the devices the carriers sold to customers. The strategy was important because “otherwise Bing or Yahoo can come and steal away our Android search distribution at any time,” a Google executive wrote in a 2011 email cited in court filings in the case. “Our philosophy is that we are paying revenue share *in return for* exclusivity.”

A Google executive told FTC investigators in 2012 that the company’s search volume could decrease as much as 50% if Apple replaced Google Search with Bing. “We are paying for the promotional placement and the default setting,” he said, according to a leaked 2012 FTC memo first published by in 2021. By 2020, when the Justice Department and states sued, they estimated that Google was the default on 90% of mobile browsers and 83% of computer browsers.

Google has never disclosed how much it pays in these deals. According to the FTC memo, the company paid between $10.9 billion and $13.1 billion in 2012 to secure its default position. In securities filings, the company discloses payments made to partners from revenue-sharing agreements, along with money paid to website publishers and YouTube creators for advertising, in one figure. Those payments amounted to $48.95 billion in 2022.

When Apple and Google renegotiated their deal in 2016, the amended agreement expanded use of Alphabet’s search engine to Siri—which had been using Microsoft’s Bing—and Spotlight, a search feature to find programs and files on Apple devices. Two years later, Apple Chief Executive Officer Tim Cook and Alphabet CEO Sundar Pichai, who were involved in those negotiations, met again to discuss how the companies could work together to drive search revenue growth, the Justice Department said in its complaint.

Walker, Alphabet’s chief legal officer, says there’s nothing nefarious about such deals and that Google views its relationship with Apple as one of “co-opetition”—part cooperation, part competition. “We work with them on a variety of different areas and make our products and services available” on the iPhone, he says. “At the same time, we compete with them.”

But while such a deal may have seemed benign in 2005, the situation changed as the companies became so large, according to Rebecca Allensworth of Vanderbilt Law School. Their multibillion-dollar deal is effectively buying them protection against future competition. “You are not supposed to be able to cooperate with your competitors,” she says. Bloomberg

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