The company’s operations might change fundamentally after its big defeat in court, a group of pundits believe.
No news wasn’t really good news for Google parent Alphabet (GOOG -3.94%) (GOOGL -3.69%) on Tuesday. It’s safe to say the mighty tech company doesn’t like being reminded of its woes in the regulatory sphere, particularly with its antitrust fight against the federal government’s Department of Justice (DOJ). Yet a clutch of analysts at an influential financial services company again put it on Alphabet’s radar with a new, not overly positive analysis.
Painful remedies
Before market open, Morgan Stanley published a client note outlining four potential outcomes of the Alphabet antitrust case, which it lost in early August. None of the quartet envisions the tech giant escaping without at least some damage from the situation.
In the first, least severe scenario, Alphabet’s foundational search business, Google, would be mandated to remove exclusivity clauses from its distribution screens. It would be required to implement choice screens, allowing users to choose their search engine instead of defaulting to Google. The Morgan Stanley team feels this is the best-case scenario, citing data from Europe, where the choice screen is required, showing that Google nevertheless maintains a more than 97% market share on that continent.
In the second and third scenarios, Alphabet would be forced to make more significant changes. These include auction pricing restrictions and more extensive removal of exclusivity clauses. In the bank’s view, this could open the door for well-financed competitors like Microsoft‘s Bing to grab market share in search.
The fourth scenario is the worst
In the most severe future scenario for Alphabet’s search efforts, according to Morgan Stanley, the DoJ would place restrictions on the company’s ability to pay third parties for distribution agreements. What this would likely lead to is hungry competitors out-bidding Google to be the default search option on major operating systems. Depending on the intensity of this competition, this presents a direct and potentially quite serious threat to Google’s current dominance.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.