Cue Testimony in US v. Google

David Pierce (MacRumors, Hacker News):

Apple is in court because of something called the Information Services Agreement, or ISA: a deal that makes Google’s search engine the default on Apple’s products. The ISA has been in place since 2002, but Cue was responsible for negotiating its current iteration with Google CEO Sundar Pichai in 2016.

[…]

Meagan Bellshaw, a Justice Department lawyer, asked Cue if he would have walked away from the deal if the two sides couldn’t agree on a revenue-share figure. Cue said he’d never really considered that an option: “I always felt like it was in Google’s best interest, and our best interest, to get a deal done.” Cue also argued that the deal was about more than economics and that Apple never seriously considered switching to another provider or building its own search product. “Certainly there wasn’t a valid alternative to Google at the time,” Cue said. He said there still isn’t one.

[…]

Bellshaw asked Cue a number of questions about the iPhone setup process. Those three screenshots showed the Appearance screen that shows up when you first boot up your iPhone so you can pick font sizes; the location-tracking prompt that appears when you open Maps; and the App Tracking Transparency pop-up that tells you when an app wants to collect your data. Cue objected to all these things being considered part of setup, but Bellshaw’s point was that Apple offers its users a choice about lots of things, big and small, and that search could be one of them.

Putting aside whether there should be a choice during setup, Safari doesn’t even let you add a custom search engine.

John Gruber:

Safari should ship with a list of default search engines, of course, but users should be able to add to that list.

Francisco Tolmasky:

The fact that it’s so hard to add a new engine [to Safari] makes it a self-fulfilling prophecy by making it even more difficult to start a new engine. This is why I say that the static list is worse than the default. You have the chicken & egg problem of making a new search engine & convincing Apple to add you to the list. But why would they do that if you don’t have a lot of users? But how are you going to get a lot of users if no one knows how to add your search engine in their browser?

John Gruber:

Say what you will about alternatives like Bing and DuckDuckGo (which is powered by Bing results), but they are — I say — at least “valid” alternatives to Google for web search. I’ve been using Kagi — a paid search engine with plans starting at $5/month — for about a year and there’s no question in my mind that I’m getting as good or better results than I do from Google for the overwhelming majority of my searches. […] So as Google’s search result quality deteriorates — but their ability to monetize their search monopoly remains strong — Apple looks bad too.

Francisco Tolmasky:

Apple’s position simply makes no sense. If there was no other valid alternative, they’d have to use Google for free, not be able to twist their arm to get $21B out of them. They’d have no leverage if Google were the only game in town. You pay someone to do things they don’t have to do, not to do the only option available to them. Certainly not to the tune of $21B. And it’s basically pure profit, so probably 20% of their net income.

Put another way, Apple probably makes more money from featuring Google search in Safari than from all of its non-iPhone hardware products combined.

David Pierce:

Bellshaw never quite said it, but the DOJ’s implication seemed to be that, essentially, Google is a privacy menace anathema to everything Apple believes is important to its users, but Apple gives it a central place in its platform because Google pays it so handsomely.

Previously:

• Unlimited Kagi Searches
• Google Changes Search Queries to Show More Ads
• Google Accused of Violating Retention Obligations
• Google Search Is Dying
• The Danger of Sideloading Chromium
• Lawsuit Alleges Google Paid Apple to Stay Out of Search
• Court Documents About Epic v. Google and App Store
• Data Privacy Day at Apple
• Google Antitrust Lawsuit

Update (2023-10-24): Nick Heer:

But that is obviously the point the government is making. Google does not need to pay Apple because it is worried it will immediately lose an entire audience of iPhone, iPad, and Mac users who do not change their default settings — and, if the number of people I have seen who do not even set a new wallpaper is any indication, that is a lot — it pays Apple so nobody even thinks of another option in search, email, advertising, and video hosting.

But whatever could Cue mean by saying that, if Apple and Google would be unable to come to a deal, that “we shouldn’t move forward”? If there were no other options at the time, as Cue said, this is an empty threat — the kind of negotiating posture that seems unlikely to give Apple an increasingly lucrative contract.

Update (2023-10-27): Tim Hardwick:

Back in 2018, Apple held talks with DuckDuckGo to replace Google as the default search engine in private browsing mode, but ultimately rejected the idea, according to transcripts unsealed by the judge overseeing the US government’s antitrust trial against Google in Washington.

[…]

According to Bloomberg, Apple did not move forward with the deal because John Giannandrea, who joined Apple as head of search in 2018, assumed that since DuckDuckGo relies on Bing for its search information, it also likely provides Microsoft some user information.

But it probably still would have been more private than Google.

Matt Stoller (via Nick Heer):

Google is a very powerful corporation worth around $2 trillion, it controls access to the internet, and it will roll out generative artificial intelligence for billions of people. And yet, the public hasn’t heard that much about a major trial where the firm and its executives are being asked how they secured that immense power. Why?

There are several possibilities, but in my view, the most obvious reason is that the judge in the case, Amit Mehta, is effectively holding the contest in secret. Last week, according to our calculations, over half of the trial, including testimony from key witnesses, happened in closed session, unavailable to the public.

Nico Grant (Hacker News):

But the documents viewed by The Times showed that Google understood the power of defaults in channeling users to a product as it tried to change Apple’s selection of Safari as the iPhone’s default web browser.

[…]

Google executives figured that if users had to make a choice, the number of European iPhone users who selected Chrome could triple, according to documents reviewed by The Times. That would mean the company could keep more search ad revenue and pay less of it to Apple.

Previously:

• Unraveling the Digital Markets Act

Update (2023-11-27): David Pierce:

Even if it’s easy to switch browsers or platforms or search engines, the one that appears when you turn it on matters a lot. Google obviously agrees and has paid a staggering amount to make sure it is the default: testimony in the trial revealed that Google spent a total of $26.3 billion in 2021 to be the default search engine in multiple browsers, phones, and platforms.

[…]

Its entire ad business — which also includes YouTube ads — made a bit under $90 billion in profit. This is all back-of-the-napkin math, but essentially, Google is giving up about 16 percent of its search revenue and about 29 percent of its profit to those distribution deals.

[…]

Most of that money, of course, goes to Apple. The New York Times recently reported that Google’s deal to be the default search engine in Safari across Google products cost the company about $18 billion in 2021.

John Gruber:

So somewhere between 20-25 percent of Apple’s Services revenue comes from these payments from Google alone.

But probably much more of the Services profit.

This whole partnership with Google is the weakest link in Apple’s overall privacy stance. Google generates so much money from search through user tracking that Apple would consider contrary to its own internal values. If Apple were to run its own search engine, it would be far more private than Google Search. But instead they partner with Google, set Google as the default for Safari on all platforms, and share in Google’s profit to the tune of around $20 billion/year.

Leah Nylen (via Hacker News):

Google pays Apple Inc. 36% of the revenue it earns from search advertising made through the Safari browser, the main economics expert for the Alphabet Inc. unit said Monday.

Tuta (via Hacker News):

It looks like these payments were made so that Apple themselves would not develops their own search engine according to testimony made by Apple executives in September 2023.

Update (2023-12-06): John Gruber:

All those developers complaining about Apple’s 70/30 split for App Store revenue should take note: even Google only gets a 64/36 split for search.

Mike Masnick:

How does antitrust handle a situation where the company that is so dominant is in that position because is legitimately offers a better product by a wide margin.

I would love to see more real competition in the search space. Bing and DuckDuckGo continue to just not cut it. I’m intrigued by startups like Kagi (which I’ve been using, and which actually seems pretty good), but it’s not clear how antitrust helps companies like that get a wider audience.

Via John Gruber:

I think it’s pretty clear that Apple and Google’s TAC deal is the result of fair competition, not an obstacle to it.

I don’t know that it’s unfair, but surely it creates a huge moat to prevent Apple from developing its own search engine or entertaining offers from others that might challenge Google. The fact that the split seems so favorable to Apple also suggests that Google views this as strategic, not just a mutually beneficial revenue share.

I also wonder whether there’s something in the TAC deal that requires Safari to prevent you from adding new search engines or whether Apple just doesn’t want to allow that.

See also: MacRumors.

Antitrust Apple Services Business Department of Justice (DOJ) Eddy Cue Google Google Search iOS iOS 17 Kagi Search Legal Privacy Safari Strategy Tax

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