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Apple Might Roll Out Its Own Search Engine in Direct Challenge to Google Search

Editor, TRANSFIN.
Oct 30, 2020 12:27 PM 5 min read
Editorial

Apple and Google have a complicated relationship.

On one hand, the Silicon Valley giants are fiercely competitive. Steve Jobs once vowed “thermonuclear war” against Google’s attempts to build an iPhone rival. “I’m going to destroy Android,” Jobs once said. “I will spend my last dying breath if I need to.”

Meanwhile, Tim Cook has repeatedly pilloried Google over its internet advertising practices, which he said engaged in “surveillance” of consumers.

But on the other hand, the two companies are joined at the hip over one of the fundamental areas of the internet - search. The deal that dictates this unique relationship is one that is central to the way the tech world functions today.

And it’s a deal that has sparked one of the largest antitrust lawsuits in recent memory.

Firstly: Google Search is a Big Deal

Alphabet - Google’s parent company - wears many hats. Through its subsidiaries and acquisitions, it has operations in cloud computing, software, hardware, messaging, mapping, video sharing, broadband internet, AI, telecommunications, autonomous driving, biotech etc.

But the vertical for which the company is most well-known for is probably search - i.e. The ubiquitous Google search engine.

 

 

And Google dominates search. As of September 2020, its market share in the global search engine market was an astounding 92.26%. And needless to say, revenue generated from search advertising is indispensable for Alphabet.

 

Now, What Exactly is the Apple-Google Deal?

About 15 years ago, the two companies worked out a simple arrangement. Apple would make Google the default search engine on its devices in exchange for Google paying it to do so.

The numbers show just how crucial this deal is for both companies. Nearly half of Google’s search engine traffic comes from Apple devices. And Apple receives $8-12bn annually from this contract cascading all the way through to the bottom line and making up a substantial 14-21% of its annual profits.

So, it’s a win-win arrangement. Google gets a ton of search hits. And all Apple has to do is make Google its default search engine.

 

Enter, Regulator

To say antitrust regulators are suspicious of Big Tech would be a gross understatement. In the US, Europe as well as India, officials have accused the tech giants of unfair practices to stifle competition, monopolise businesses and evade taxes, among other things.

Now, the drums of war have begun roaring - and first in the regulatory hot seat is the Mountain View behemoth.

The most significant challenge to “monopolistic” Google was announced by the US Department of Justice last week. The lawsuit is the largest since the 1997 case against Microsoft - which permanently reshaped the tech landscape.

This one - sparked by Google’s search dominance - could end up doing the same, although it may be years before a verdict or settlement is reached. (As a punitive measure, the US government may resort to fines, enforcing a change in business practices, or forcing a divestment - or all of these.)

The antitrust challenge against Google comes at an interesting time. Because its deal with Apple - the pact that the US government cited as a way in which it maintained its search engine hegemony - is up for renewal shortly.

And this time around, Apple may be less inclined to renew this contract.

 

Apple’s Search for Search

For a long time, the deal with Google was an easy one for Apple.

“Their search engine is the best,” Cook said in 2018 when asked why he partners with a company he routinely lambasts in public.

But as it grew and expanded, Apple didn’t fail to recognise the irony in being overly reliant on one of its biggest competitors.

Ergo, for some time now, the Cupertino firm has been trying to perfect its own search engine expertise.

About three years ago, Google’s head of search, John Giannandrea, jumped ship to Apple. Job postings at Apple for search engine professionals have climbed up in recent years. This year, observers reported increased activity by Applebot, the company’s web crawler, which is used to build the vast database of online material that forms the foundation of any search engine.

And now, a new update in iOS 14 has begun showing Apple’s own search results when you type a query from the home screen. This is something that was only available on beta versions of iOS till now.

Rolling out its own search engine makes sense for Apple in many ways. For starters, it’s in tune with Apple’s general philosophy of creating its own ecosystem of products and services, exclusive to its brand. Secondly, it dilutes its reliance on Google. Thirdly, it helps shift the spotlight away from it at a time when internet search is at the centre of major government scrutiny. And lastly - and perhaps most importantly - it gives it an additional income stream by enabling it to generate ad revenue through search results. (The fact that this could lead to Google losing even a little bit of ad revenue itself might not hurt!)

 

Rising Asymmetry

Insiders often said that Apple’s possible rolling out of its own search engine was viewed as a “code red” situation at Google.

The severance of the 15-year-old pact could lead to one of the most significant challenges to Google’s search dominance. And with a $2trn market cap and over $92bn in cash and marketable securities sitting on the balance sheet Apple certainly has the war chest and clout required for an assault on Google’s market share.

Let’s not forget, though, that creating a search engine as good as Google’s would be a herculean task. Not to mention convincing consumers to shift from Google. It’s something Microsoft’s Bing and Verizon’s Yahoo have failed to do for years.

But breaking the Apple-Google deal might hurt the latter more. Especially now, with regulatory backlash in the US and Europe clouding over Google. Moreover, while 2020 has been a stellar year for Big Tech in general, Alphabet has seen better days. A drop in ad revenues and operating income soured its Q2 numbers.

A direct threat from the world’s most valuable publicly listed company is the last thing Google wants right now. With both companies set to report later today, expect some additional colour around this ongoing skirmish.

FIN.

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