Apple Seeks to Scrap $20B Google Deal by Claiming It's Unneeded

(CryptoTrendLens.blogspot.com) — In its attempt to preserve a profitable search agreement with Alphabet Inc.'s Google, Apple Inc. presented an unconventional argument, suggesting that the pact could become obsolete over time and that smartphones like the iPhone might eventually lose their relevance.

Eddy Cue, who serves as the corporation’s top executive for services, presented the case. during testimony Wednesday at the US Justice Department’s antitrust trial against Google. Though Apple receives roughly $20 billion a year from the company — in return for making Google’s search engine the default option on devices — Cue warned that the whole landscape is shifting.

Already, Apple plans to reshape its Safari web browser around artificial intelligence services such as OpenAI’s ChatGPT, Perplexity AI Inc. and Anthropic PBC’s Claude, he said.

Furthermore, consumers are abandoning traditional methods of searching. In April, there was a decline in Google search requests on Apple gadgets for the first time, reportedly due to users shifting towards using artificial intelligence instead.

"Technological changes bring about such opportunities," Cue stated, further noting his belief that AI service providers could eventually be offered as alternative search engines within Safari.

However, it was evident that Apple aims not to forfeit its present agreement with Google, which could be at risk should the Justice Department prevail in the lawsuit. Investors view this potential outcome as a significant threat to both organizations.

Alphabet's shares dropped by 7.3% during New York trading on Wednesday, whereas Apple declined slightly by 1.1%. Google earns billions annually from search activities initiated on Apple’s fleet of over 2 billion active devices.

Currently, the Safari web browser features Google as its default search engine, along with options like Yahoo Search, Microsoft's Bing, and DuckDuckGo. Apple has established revenue-sharing deals with each provider; however, Google provides the largest payment. This agreement forms the core of the lawsuit brought against the company based in Mountain View, California.

Cue highlighted Apple’s intention to transition its browser towards AI systems with an evident aim: minimizing the significance of the current partnership with Google. Should the market landscape have evolved and presented viable substitutes for Google, the judge might conclude that there isn’t a necessity to disrupt this longstanding arrangement. During his discussion, Cue emphasized several competing solutions, notably singling out Perplexity’s offering.

"It makes sense for Apple to emphasize data points that support the argument that Google isn’t engaging in anti-competitive practices regarding searches," noted Brent Thill, an analyst at Jefferies LLC, in a statement.

However, Apple and Google could expand their collaboration in the realm of artificial intelligence—an area that Cue did not emphasize. Google has shifted towards using its Gemini AI system for searches instead. Often when users submit queries through Google, they receive an AI-generated response initially. This applies even on devices like iPhones, iPads, and Macs nowadays.

It was uncommon for Apple to share its future plans, but they did so this time. Particularly noteworthy were Cue’s comments regarding theiPhone, which accounts for over half of Apple’s income: "Ten years from now, you might not even require an iPhone," he stated, seeming quite far-fetched at first glance.

However, this strategy was consistent with Apple’s well-established tactics used in previous legal battles. Historically, the company often makes unexpected remarks, even when these comments contradict their promotional messages, aiming to influence court rulings. In the 2021 Epic Games Inc. lawsuit, Craig Federighi, who leads Apple’s software development, testified during the proceedings involving Mac computers. encountering an issue with malware —as part of a case supporting why their application ecosystem needs to stay restricted.

One of CEO Tim Cook’s most trusted deputies and a previous close advisor to co-founder Steve Jobs, Cue faces significant pressure. The income derived from the partnership with Google has significantly contributed to the company’s service revenues in recent times. This division—one of Apple’s few consistent engines for expansion—achieved an all-time high of $26.6 billion in the March quarter.

Cue mentioned during his testimony that the idea of terminating the revenue-sharing agreement with Google has kept him awake at night. He also stated that Google ought to stay as the top choice. Although new services may be introduced, they likely won’t take precedence as the default option, according to Cue.

Although Cue isn't responsible for managing the App Store, the income generated from this platform is tracked within his division. This particular segment contributes approximately $20 billion annually to Apple’s revenues and currently faces potential risks. Recently, a judge decreed that Apple has to cease collecting commissions on transactions occurring outside their designated payment method.

However, despite these two revenue sources being at risk, Apple still has new avenues for generating income. AI systems like ChatGPT, Perplexity, Claude, and others might eventually split revenues with Apple, particularly as they possibly enter the advertising sector.

Apple might ultimately benefit more from having no exclusive agreements and instead being able to earn a share of income from numerous providers—basically revamping the App Store business model for AI search.

Currently, Apple employs OpenAI’s ChatGPT in a distinct product to handle inquiries within the Siri digital assistant. The company also intends to introduce Google Gemini as another option later this year.

Apple and Google are becoming more intertwined in various aspects. In the previous year, Apple incorporated Google’s technology into their new Visual Intelligence function, enabling users to take photos and receive artificial intelligence-driven analyses. According to Cue, both corporations also share revenues from this particular feature.

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