Shares of Alphabet and Apple dropped on May 7, after testimony from Eddy Cue, Apple’s services chief, in a federal court.

Alphabet shares fell over 7%, while Apple shares declined by 2%.

Cue suggested that AI-powered search engines, such as OpenAI, Perplexity, and Anthropic, could eventually replace traditional search engines like Google.

This testimony is part of the Justice Department’s ongoing antitrust lawsuit against Alphabet.

The case examines Google’s dominance in ad-tech markets and its payments to platform providers like Apple to keep Google as the default search engine.

🔗 Source: CNBC

🧠 Food for thought

1️⃣ The $20 billion Apple-Google partnership faces an existential threat

The Google-Apple search agreement has evolved into one of the most financially significant tech partnerships in history since its inception in 2002.

Google’s payments to Apple reached $20 billion in 2022, representing approximately 25% of Apple’s services revenue and 5% of its total revenue 1.

The magnitude explains why Apple executive Eddy Cue testified that he “lost sleep” over potentially losing this revenue stream, highlighting the financial stakes for both companies.

Google’s internal modeling estimates that losing default status on Apple devices could result in a 60-80% reduction in search queries from those devices, translating to potential losses of $28-32 billion annually 2.

This financial interdependence creates a complex dynamic where both companies publicly prepare for potential AI disruption while having powerful incentives to maintain their existing arrangement.

The U.S. District Court ruling specifically targets these default agreements as potentially harmful to competition, suggesting they prevent rivals from accessing critical data needed to build competitive search alternatives 3.

2️⃣ Safari’s first-ever search decline signals a fundamental shift in information discovery

Cue’s testimony revealed that searches on Safari declined for the first time in April 2024, indicating a potential inflection point in how users access information.

This decline coincides with the rising popularity of AI-powered tools like ChatGPT and Claude, which allow users to get information without visiting traditional search engine result pages.

The 2024 data showing that 60% of Google searches now end on the search results page without users clicking through to websites demonstrates how information retrieval patterns are fundamentally changing 4.

This mirrors the historical evolution of search technology, which has progressed from basic crawlers in 1993 to Google’s PageRank in 1998 and then to AI systems like RankBrain in 2015 that can understand complex queries beyond simple keyword matching 5.

Apple’s interest in integrating OpenAI, Perplexity, and Anthropic as search options suggests the company recognizes this shift toward AI-powered information retrieval could permanently alter user behavior.

The timing of this testimony coincides with rapid advances in multimodal generative AI that can process text, images, and other data simultaneously, potentially creating entirely new paradigms for information discovery that extend beyond traditional search 6.