Google faces the daunting prospect of altering past deals that accounted for a substantial chunk of its revenue after a federal judge ruled on Monday that its parent company, Alphabet Inc. (GOOG  ) (GOOGL  ), is a monopolist.

What Happened: U.S. District Court Judge Amit Mehta moved the antitrust lawsuit into a remedy discovery phase. As a result, potential changes Google must implement will be explored, according to JPMorgan analyst Doug Anmuth in a Tuesday note.

The lawsuit specifically targets Alphabet's search distribution agreements with Apple Inc (AAPL  ), Android OEMs, and third-party browsers, Anmuth explains. "We believe the contested contracts could represent up to ~25% of Google's Search revenue, or ~15% of Alphabet's total revenue," he added.

Why It Matters: Alphabet had revenue of more than $84 billion in the quarter ending June 30, touting 13.6% growth. The company generated around $328 billion in revenue over the last twelve months. That's up 13.38% year-over-year.

The ruling against Google threatens a significant portion of this revenue. After all, its search distribution agreements have long ensured that Google remains the default search engine for millions of users.

"Roughly 50% of all general search queries in the US flow through a search access point covered by one of the challenged contracts," Anmuth notes, illustrating the potential impact on Alphabet's bottom line.

Anmuth posits three possible scenarios for Apple devices:

  • Non-Exclusive Consumer Choice Model: Google might pay less in traffic acquisition costs (TAC) while still retaining significant market share.
  • Default Shift to Competitors: Microsoft Corp (MSFT  ) or OpenAI could become the new defaults.
  • Apple's Own Search Engine: Apple's potential development or acquisition of its own search capabilities is viewed as a costly option.
For Android OEMs, Anmuth foresees a shift to consumer choice, similar to changes already implemented in Europe.

Market Reactions: Google shares didn't plummet following the judge's ruling, leaving many investors puzzled. Anmuth provides insight into why the market didn't react more negatively:

  • De-Risking Effect: Google shares are already down 17% from recent highs, which some see as having absorbed the blow.
  • Appeal Process: Anmuth notes that "Google will likely appeal, pushing out timing." He sees potential remedies as undetermined, providing a buffer period before any concrete financial impacts.
  • Potential Silver Linings: A non-exclusive consumer choice model may mitigate the damage or even bolster Google's profitability.
Anmuth emphasizes, "We believe the Judge's decision is negative for Google, & the best outcome would have been preserving the status quo." While investors seem cautiously optimistic, the tech giant's monopoly status is now undeniably under scrutiny. This leaves its future market dynamics shrouded in uncertainty.

What's Next: Apple could potentially pivot to deeper partnerships with Microsoft and OpenAI.

"We worry more about Apple partnering more deeply w/both MSFT and OpenAI, particularly following the integration of ChatGPT into iOS18," Anmuth says.

Microsoft's Bing recently introduced generative search and OpenAI is testing a Search GPT prototype. The financial implications of such a shift are profound.

However, Google's payment to Apple was a staggering $20 billion in 2022, a figure that Microsoft and OpenAI would find challenging to match.

Anmuth points out, "As noted in the ruling, Google concluded that MSFT would have to pay Apple 122% of Bing's revenue share simply to match Google's payout to Apple."