Business

Apple’s Eddy Cue defends default search contract with Google as best option for consumers

September 27, 2023

Apple Senior Vice President for Services Eddy Cue arrives at the Prettyman U.S. Court House on September 26, 2023 in Washington, DC.

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Eddy Cue, Apple’s senior vice president of services, testified on Tuesday that the company chose to make Google the default search engine on iPhones because it made the most sense for consumers and “there wasn’t a valid alternative.”

Cue, Apple’s lead negotiator of its multibillion-dollar contract with Google, appeared in federal court in Washington, D.C., to discuss the long-standing agreement between the two companies. Though more granular details of the agreement are likely to come up further in testimony that’s closed to the public, Cue’s opening statements shed light on on aspects of the deal rarely discussed in the open.

“When we’re picking search engines, we pick the best one and we let the customer easily change them,” Cue said. He later added that when it comes to alternatives that Apple offers, they have some that “customers have never heard of,” which can make them afraid of making the wrong choice.

Bernstein has estimated that Google could pay Apple as much as $19 billion this year under the agreement, though the exact terms have not been revealed.

When Cue renegotiated the Information Services Agreement (ISA) with Google CEO Sundar Pichai in 2016, one of his goals was to get Google to increase the revenue share percentage it pays to Apple, Cue said in his testimony. Under the terms, Google pays an undisclosed cut of the net revenue it makes from advertising on searches run on Apple devices.

Google CEO Sundar Pichai (L) and Apple CEO Tim Cook (R) listen as U.S. President Joe Biden speaks during a roundtable with American and Indian business leaders in the East Room of the White House on June 23, 2023 in Washington, DC.

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Cue said he “thought it was the right thing and the fair thing for us,” to increase the revenue sharing percentage. Apple had built the technology and “deserved” a higher revenue share, he testified.

Meagan Bellshaw, the Justice Department attorney, brought up a 2016 email correspondence with Apple CEO Tim Cook, Cue’s boss. Bellshaw directed Cue to reference a “Rosetta Stone” that matched letters to corresponding revenue sharing percentages, so that the exact numbers would not be revealed in open court.

In the first exchange that was shared, Cook asked Cue how the meeting went, which Cue said he understood to mean his meeting with Pichai about the search contract. Cue responded that it was “good except for the rev share.” Pichai “did not come back with a specific number, but said there is no way he could make C percentage work,” referring to the number Apple sought in the negotiation.

In the email to Cook, Cue said he needed to meet with Pichai “alone next week and agree to the economic terms or we shouldn’t move forward,” referring to the revenue sharing number.”

But Cue said on the stand Tuesday that he was confident a deal would get worked out with Google and that he hadn’t seriously contemplated what Apple would do if it didn’t.

“Certainly there wasn’t a valid alternative we would have gone to,” Cue testified. “It’s not something that we ever really truly considered.”

Ultimately, Cue said he felt it was in the best interests of both companies to finalize a deal.

Cue said the two sides agreed to a revenue sharing percentage that was different from the number each presented initially. The terms of the deal were renewed in 2021 to extend the contract.

The DOJ asked whether there was a provision in the agreement for Apple to support and defend the deal in connection to government actions. Cue confirmed there was but that he didn’t know a lot about it. At the time, Cue said, Google had requested the addition while it was under investigation in Europe, and Apple’s counsel had said it was fine to include.

‘It frustrates customers’

The DOJ also asked Cue to detail how Apple decides where and how it will give consumers a choice about the setup of their iPhones. One alternative that Google competitors have floated to its default status on devices is to give consumers a chance to review their search engine options in a way that presents them equally.

Cue’s testimony spoke to some of the challenges that approach could face.

He said that when consumers get a new device, they want it to work quickly.

“The more choices or the more options that you get, it frustrates customers,” he said. So when a customer gets a new iPhone, for example, they’ll only be asked about choosing key details they want to deal with right away, like font size.

Cue said that offering users a choice for their appearance settings out of the box is different from selecting a search engine.

In certain countries, like China and Russia, Apple has carved out the default status for Google because it determined that there was a better option for consumers in those regions. But in other places around the world, the company still sees Google as offering the best experience, Cue said.

In his testimony, Cue also reiterated criticism that Apple has when it comes to Google’s privacy practices. Cue said he agrees protecting privacy is important to Apple, including on search, and said the company has taken steps to limit Google’s tracking ability on its devices. For example, it prevents Google from forcing users to log in to use the search engine.

The DOJ presented a slide deck Cue sent to Cook in January 2013 titled, “Competing on Privacy.”

A slide labeled “Privacy Timeline” included a headline about Google’s $22.5 million settlement with the Federal Trade Commission in 2012 over claims it misled users about its tracking on Apple’s Safari browser. Cue acknowledged he was aware of that settlement when negotiating the ISA, but added, “we’ve always thought we’ve had better privacy than Google.”

Another slide referenced a quote from former Google CEO Eric Schmidt, who said the company’s policy boils down to getting “right up to the creepy line” but not crossing it.