The search engine market is likely to get much hotter in the coming year if Apple (AAPL) adds a mobile search engine as the default option on its popular iPhones. Apple has no choice but to enter that game. The Cupertino, Calif. company has been giving (GOOG) a tremendous branding and revenue opportunity -- free of charge -- by incorporating Google Search as the default option in Safari browsers, the only browsers on iPhones.

That the two titans are going to clash, big time, is a foregone conclusion. There have been some warning signs. Google CEO, Eric Schmidt, resigned from (or was asked to leave) Apple's Board of Directors in August. Another Apple director, Genentech CEO Arthur Levinson, left the Google board not long after. He did this, ostensibly, to avoid conflict of interest.
Verizon (VZ) then dialed up the rhetoric with its "Droid Does" blanket media campaign, which took nasty swipes at the failings of iPhones. And Google's newly released navigation application -- priced at $0 -- wiped out in one afternoon what looked to be a very promising revenue stream for Apple in the form of pricey GPS applications downloadable on iPhones.

Which leads me to a few conversations I had with search engineers around Silicon Valley and San Francisco. In the search community many are now starting to ask not whether but when Apple will enter the search engine market in some shape or form. Their logic, from a technical standpoint, is that Apple already has most of the tools necessary to run some sort of search engine product.

Apple is building a $1 billion data center in North Carolina for purposes yet undisclosed. Apple has deep experience, through its iTunes Store, with running a vast IT infrastructure requiring millions of concurrent transactions every second in the form of downloads.

Research bearing fruit

Apple also has, believe it or not, a team of search engineers who are quite well versed in a very powerful open-source search engine technology roughly referred to as Solr/Lucene. My understanding is Solr/Lucene underpins the fabulous Spotlight search tool that Apple installs on every desktop.

Apple also uses Solr/Lucene to power the search functions on its sites and on iTunes. Solr/Lucene could easily challenge Google's own search engine technology should a large enterprise decide to tune it up for a wider Web usage.

So Apple clearly has the tools and the know how. But why would Apple take such steps? This goes back to the ongoing battle over the soul of the mobile Internet. Apple and its close partner wireless carrier AT&T (T) envision a more closed, controlled system of tightly integrated devices, software and services. Google sees a completely open Mobile Internet with open smartphone operating systems and communications networks that will allow any company to compete.

Google is already openly challenging Apple and AT&T with the battle over Google's disruptive VoIP application, GoogleVoice. Apple has thus far not allowed GoogleVoice into the iPhone app store, a move that appears to have been tacitly supported by AT&T (although AT&T has publicly denied any involvement).

Google's Navigation app has features that blow away existing navigation apps. The mere existence of this app puts forth another implicit challenge to Apple's control over the ascendant iPhone platform. If Apple refuses to allow the Google Navigation app onto the iPhone, the hackles of the Federal Communications Commission would surely be raised.

How does this tie into search? When I open up the Safari browser on my Apple iPhone 3Gs, the default search engine is Google. I don't know what Google's marketshare is on iPhones, but I'd wager its higher than even the 70 percent that Google enjoys among Web surfers not using handsets.

Taking Google out of the iPhone


The presence of Google as the default search on iPhones is surely now viewed as a cancer by Apple CEO Steven P. Jobs. What's more, Jobs and his team understand that control of the phone is control of a large chunk of future revenue growth. And what is the top use of most smart phones, after voice and email? That would be search. Naturally, Apple has probably noticed the ridiculously huge revenue stream pouring into Google's coffers each quarter.

So Apple understands, clearly, the power of the search model as a means of making piles of money. And Apple definitely understands that mobile search and revenue streams coming off of mobile advertising are both set to soar in the next decade. At the same time, Apple's own iPhone could end up providing a huge revenue stream to archival Google. This is not something that I can see Apple standing idly by on forever.

The next question is how would Apple choose to monetize search? That's a tricky question. Apple could probably tie into the growing ranks of mobile ad networks and have them serve as a virtual sales force and self-service sales engine. But Apple is very particular about the control of its devices and products and may not feel comfortable pulling in ads from third parties.

Apple could also build out its own sales force and infrastructure. That may sound far fetched. But until a few years ago so did the idea of hundreds of Apple retail stores dotting the land.

Then again, the real answer might be, Apple won't monetize search. It just will use search as a way to differentiate the iPhone. Let's face it; mobile search in its present form is still very clunky with hard-to-read pages and lots of fumbling on touch-screen menus. Things will get better, surely. But one area where Apple has a clear advantage is development of innovative user interfaces that simplify complex tasks (like using multiple applications on smart phones, for example).

If Apple made a truly great search engine for mobile devices that was only available on the iPhone, this could provide a serious sales boost and might help defend Apple's franchise position as the top dog in the smartphone world.

Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at alex@dailyfinance.com.

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