Apple, Google & Microsoft – Always searching.

No solution to Google Search.

• Court documents confirm that while Apple would love to become self-sufficient in a number of core technologies, there are a number of areas where it will remain dependent on others for the foreseeable future.
• As part of the Department of Justice’s (DOC) suit against Google, documents are coming to light that demonstrate just how much Apple hates being dependent on third parties as well as how strong Google’s current position in search is.
• Recent search data indicates that despite the hype around generative AI killing the search business, its impact after one year has been immaterial.
• According to court filings made as part of the case, Microsoft offered to sell Bing to Apple in 2020 but the deal never went anywhere because I suspect that it did not make commercial sense for Apple.
• This is because, on top of the traffic acquisition cost (TAC) that Google pays to Apple, it also pays billions of dollars every year to be the default search provider on Apple products.
• TAC is a normal course of doing business and all handset makers and websites that generate advertising revenues for Google receive a cut of the revenue.
• Hence, TAC alone cannot be the reason for the deal failing as if Bing were to become the default search provider on Apple, then the TAC would still get paid.
• In this scenario, Microsoft would pay TAC for the searches that it performed for users who used the default setting while Google would pay for those users who switch back to Google.
• Consequently, whoever the search provider is on the iPhone, the TAC is unlikely to change very much.
• This is why I have long been of the opinion that Google pays Apple a higher percentage of the revenue (or a fixed sum) over and above what it would normally pay to others for TAC.
• This is the power of default and as the USA is Google’s biggest market by a wide margin and Apple has around 60% share of the USA market, this makes a lot of sense.
• Owning Bing would reduce the TAC for Apple on searches where the default provider has not changed but it would have to pay the costs of running a search engine.
• Consequently, the business sense of this transaction would depend on making a forecast of how many iPhone users would switch search back to Google.
• Typically, very few users will switch from the default setting on their device but when it comes to Google Search, the outcome is less certain.
• This is because remains demonstrably better than anything else that is out there today.
• When it comes to the top hits, there is little difference but where Google excels is in the long tail and its superior ability to figure out what the user is looking for and surface what are normally more obscure items.
• This is why Google has 90% market share in search and why ChatGPT and so on have been unable to make any real impact on that market position.
• Hence, there is a real risk that if Apple was to acquire Bing, a large number of its users would switch back to Google leaving it with a load of costs for which it has no incremental revenues.
• Furthermore, Apple spends plenty of time criticising Google’s business model and its impact on privacy and so if it was to acquire Bing, it would have a lot of egg on its face.
• This is why I suspect that these talks never really went beyond the exploratory phase which confirms my long-held view that while Bing is a reasonable search engine, it is no real match for Google.
• Hence, like 5G radios from Qualcomm, search is a technology that Apple will continue to bring in from outside for at least several years into the future.
• Apple shares have corrected somewhat but still trade at a 2024 PER of 26.0x which I think is too expensive for a company that is struggling to grow.
• I continue to look elsewhere.