Google must permit qualified competitors to syndicate its search and text ad services, but it will not be compelled to sell off Chrome.
Although the long-awaited search remedies for Alphabet Inc.’s antitrust case turned out better than anticipated, Google’s (GOOGL) (GOOG) business still faces more difficult obstacles in the future.
Following the Justice Department’s recommended structural remedy during the hearing—Google’s decision to divest Chrome—Judge Amit Mehta’s decision on Tuesday caused investors to rejoice. Alphabet’s stock is expected to close at a record $228.90, up 8.3% in morning trading.
However, Ben Reitzes, an analyst at Melius Research, questioned whether the ruling’s outcomes were “too good to be true.”
The quick development of artificial intelligence, which has caused the search environment to become more fragmented in recent years, is one factor contributing to the more lenient verdict. In the decision, Mehta recognized that while Google is still the market leader, generative AI is becoming a rival in the search market. According to Apple Inc.’s (AAPL) testimony in the case, the emergence of AI is probably the reason why Safari searches decreased in April for the first time in 22 years.
AI chatbot users avoid clicking on Google Search advertisements, which Reitzes claimed is dangerous for Google. Reitzes believes that the 8% increase in cost per click is unsustainable, even though Google reported a 4% increase in sponsored clicks in its second-quarter earnings in July.
The court noted in the ruling memorandum that many of the remedies were designed to “ensure that Google’s dominance in search does not carry over into the GenAI space.” Mehta’s decision supports assisting AI businesses in improving their offerings.
Also read: As risks increase, Google is stepping up its efforts to use AI in search
Mark Shmulik of Bernstein described the requirement that Google now give rivals access to user-interaction data and organic search results in order to assist them in creating their own products as “more severe than expected” on Wednesday. According to Shmulik and Reitzes, this advancement will help Apple Inc.’s business as well as ChatGPT and other chatbots.
“Google’s near-term risk is probably worse today than yesterday,” Shmulik stated as a result. “The ruling gives Apple a buffet of strategic options to consider which we believe could increase their negotiating leverage with Google on deal terms.”
While there will be certain restrictions, the judge’s decision to allow Google to continue its revenue-sharing arrangement with the firm, in which Google pays Apple to preload Chrome and Google Search on its devices, may also have contributed to Wednesday morning’s 3% increase in Apple’s stock price.
While some Wall Street analysts worry that AI will eventually replace Google Search, others believe Google can overcome this obstacle.
Google’s Gemini still holds a strong competitive position among AI chatbots, and Google and Apple’s current partnerships make it a good fit for a partnership with Gemini, according to Needham analyst Laura Martin, who acknowledged that AI is eroding Google’s search monopoly.
“We expect yesterday’s court decision to clear the way for new forms of partnership between [Apple] and [Google], which should add to earningsupside” for Google, according to Martin.
John Blackledge, an analyst at TD Cowen, contended in a note on Wednesday that Google is implementing AI Overviews and AI Mode in an effort to effectively sustain its search dominance. According to a TD Cowen poll, users gave AI Mode a ranking comparable to ChatGPT, and Google Search is growing overall as a result of the new AI capabilities.
Google “has similar or better GenAI technology vs competing upstarts,” according to Blackledge.