Eddy Cue should be rewarded for his efforts.
As the leader of Apple’s services division, he is motivated to safeguard the substantial annual payments Google makes to secure its status as the default search engine in Safari. In his testimony during Google’s antitrust trial earlier this year, Cue remarked, “I’ve lost a lot of sleep thinking about it.”
Cue’s court statements seem to have resonated with Judge Amit Mehta, who ruled this week that Google’s payments to Apple and other entities can persist. Cue argued in court that it would be “crazy” to impose penalties on Apple by limiting Google’s capacity to pay for its default position, noting that the rise of AI companies is altering the search landscape. He even claimed that Google searches via Safari were decreasing for the first time, which briefly impacted Google’s stock value.
Mehta mirrored these points in his decision, acknowledging that while default payments do “shape the market for general search services in Google’s favor,” prohibiting them would result in “crippling” consequences for the beneficiaries of those funds. He specifically noted that such a ban could lead to “fewer products and less product innovation from Apple,” a corporation with enormous wealth, as Google’s payments are said to constitute roughly 15% of Apple’s annual profits.
In his ruling, Mehta acknowledged the emergence of generative AI firms like OpenAI and Perplexity as signs of increased competition in the search sector. He observed, “The money flowing into this space, and how quickly it has arrived, is astonishing,” expressing hope that Google wouldn’t merely outspend competitors for distribution if better products emerge.
However, the financial dynamics between Google and Apple are complex. Historically, Google has compensated Apple a share of the ad revenue it generates through Safari, creating aligned incentives for both tech giants, which have profited from this collaboration for nearly two decades.
Interestingly, immediately after Mehta’s ruling, reports surfaced indicating that Apple is potentially working with Google to integrate Gemini, Google’s AI, into a new search engine for Siri. Apple executives have been considering this integration for over a year but refrained due to public perception. Now, they have received approval from the U.S. government to move forward.
According to the tech research firm MoffettNathanson, “This outcome is a home run for the status quo, and the status quo has been very favorable to both Google and Apple.” The firm emphasized that while they do not believe the search landscape is free from competition, this ruling allows for a smoother transition for both firms without external disruptions.
Despite calls for action against Apple and Google’s agreement, it remains intact, potentially setting the stage for both companies to strengthen their shared dominance in the AI era. Although Apple is currently lagging in AI, it serves as a significant distribution channel for Gemini through its various devices. As long as Google continues to provide search payments, Apple has little incentive to pursue acquisitions aimed at catching up in the AI sector.
Additionally, the recent ruling complicates OpenAI’s partnership with Apple regarding ChatGPT. While Apple might appreciate having options, it is unlikely to risk its lucrative relationship with Google. OpenAI currently does not possess an advertising model to provide Apple with a similar revenue share, which casts further doubt on the ability of another firm to outpace Google’s substantial payments, leaving both companies in their ever-favorable positions.
Elsewhere
- A notable seating arrangement: If you have insights about the seating decisions for last night’s significant AI dinner at the White House, feel free to share. The positioning of Alexandr Wang across from Sam Altman was particularly eye-catching, as was Mark Zuckerberg’s placement between Donald Trump and David Sacks. There are certainly jokes emerging regarding Chamath Palihapitiya’s attendance, as observed on social media.
- Exciting times for OpenAI employees: Understanding the scale of a $10.3 billion tender offer that OpenAI made available this week can be challenging. To put it in perspective, eligible employees (who have been with the company for at least two years) can opt to sell up to $30 million by the end of the month, which is triple the previous cap. The excitement is palpable!
- Reunions at OpenAI: In an interesting development, Fidji Simo is seeing her team at OpenAI begin to resemble the executive lineup of mid-2010s Facebook. Vijaye Raji, a former engineering leader at Facebook, is returning to collaborate with Simo as the CTO of OpenAI applications. His company, Statsig, will also be acquired but is expected to remain independent. Additionally, Srinivas Narayanan, previously an engineering head at OpenAI, is now CTO of “B2B applications.” OpenAI now boasts two CEOs and two CTOs.
Link roundup
More insights below:
- I discussed the “EyesOnOpenAI” coalition’s plans to challenge OpenAI’s shift away from its nonprofit roots on this week’s episode of Decoder.
- Elon Musk participated in a live stream about X’s advertising platform, making quite the splash.
- Josh Miller’s latest newsletter focuses on the sale of The Browser Company.
- “How founding engineers became Silicon Valley’s biggest catch.”
- Is Gen Z growing disillusioned with smart glasses?
- Your weekend longread: The challenges facing Wikipedia.
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