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Why Doesn’t Apple Do Its Own Search?

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In 2013, Apple (NASDAQ: AAPL  ) sold about 150 million iPhones and about 70 million iPads. It's probably safe to assume that the vast majority of these Apple customers use their phones to surf the web, and the odds are pretty good that they're using the built-in, Apple-designed Safari browser to do that searching. Apple doesn't have its own search engine, so Google (NASDAQ: GOOGL  ) and Microsoft (NASDAQ: MSFT  ) benefit  -- the latter's search technology powers Yahoo! as well. Could Apple develop search to cash in on this large install base of iOS devices?

Doing search is anything but easy...
Building a world-class, global search engine is not easy, and as talented as Apple's engineering teams are, creating one from scratch would require a significant investment and would likely take quite a long time to do properly. Buying a world-class search engine would be impossible unless Microsoft were willing to part with Bing, and even then, it's unclear if Apple would be able to morph Bing into something that provides a better user experience than Google search does today.

Apple could probably monetize its ecosystem in a more natural way...if it wanted to
Extracting ad revenue from an in-house search engine could be an interesting way to juice up the top and bottom lines, But it's not at all clear that it would be as lucrative a venture as one might initially expect, given how much money Google makes every year from ad revenue. Indeed, a look at Microsoft's profit and loss by division for the first quarter of 2014 shows that the company's online services division lost $321 million in the quarter. That's a far cry from the bags of cash that Google takes in each year from search and its related services.

That being said, there is probably still real opportunity for Apple to fairly painlessly monetize its software ecosystem with ad revenue. However, the approach that Apple seems to be taking with its software is to essentially use it to sell very high-margin, high-priced hardware. In short, the reason customers are willing to pay a premium for Apple products over an Android-based competitor's is the richness of the software that Apple provides for free with the device.

Foolish bottom line
As long as Apple can maintain or grow device share in its high-end corner of the market, then it will be clear that Apple's value-add via free software will continue to be the right way to go forward. However, if that growth really does dry up, then Apple will probably look to start monetizing its ecosystem more aggressively via ad-based services. At any rate, the iOS 8 launch, which should presumably happen at some point before the iPhone 6 launch, will give investors a glimpse into what Apple's longer-term strategy is.

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  • Report this Comment On March 13, 2014, at 1:04 PM, aeosfool wrote:

    Correct me if I'm wrong, Apple makes billions of dollars per year on search by referring

    its customers to the search engines. You are right that since they control the software that nearly everyone uses when using their ios devices, they are in a position to control 95% of their searches by controlling the default search engine. They are cashing in on that by getting fees from Google, BING etc for throwing searches their way.....

  • Report this Comment On March 13, 2014, at 1:28 PM, twolf2919 wrote:

    @aeosfool - it's billions? I imagine you're right and they're getting *something* for all those referrals, but I can't see it being billions...but anyway.

    To me, buying Bing would make eminent sense (provided MSFT were interested in selling): not only would Apple instantly earn whatever ad revenue Bing currently generates (which is more, I presume, than it currently gets from MSFT for those referrals) and, much more importantly, Apple would finally do to Google what Google did to it with the creation of Android - move in on its home turf!

    Apple's Bing may not be quite as good as Google with regards to search results, but it's definitely "good enough" - and we all know from IE's success that, when something comes bundled for free, "good enough" is often quite enough to keep users from bothering with the competition.

  • Report this Comment On March 13, 2014, at 1:53 PM, rigoberto26 wrote:

    Apple should make a search engine, as many people are fed up with Google. Create a clean interface, ease of use and relevant search results, not paid ad for click results such as google. Just keep it simple and clean.

  • Report this Comment On March 13, 2014, at 2:17 PM, iphonerulez wrote:

    Apple should simply acquire DuckDuckGo for its search engine. Apple is sitting on a gigantic pile of cash so how much is it going to hurt Apple to take over that search engine and maintain it. DDG is a fine little search engine. Honestly, if companies with far less wealth can manage a search engine then so can Apple. All Apple wants to do is keep hoarding money for itself. Wall Street's always harping about how doomed Apple is because it has to mainly depend on iPhone sales to make revenue. Apple needs to diversify at least for the sake of shareholders. An Apple search engine might at least stir up some investor interest in the company. Heaven knows Apple certainly needs it as toxic as the stock is. DDG/Apple search on every Apple device would be great publicity for Apple and it would show Wall Street that Google search isn't the only game in town.

    If Apple did as @rigoberto26 says, I'm willing to bet people would flock to a search engine not cluttered with ads and it would probably run a lot faster. I honestly think Apple is missing an opportunity instead of just throwing away money on stock buybacks. Apple can then be part of "the internet of things" and get the respect that Google gets. That's why Google stock is worth $1200 and share and Apple stock is only worth $530 a share. Apple's constant hoarding of cash really needs to change into something more positive.

  • Report this Comment On March 13, 2014, at 3:37 PM, aeosfool wrote:

    twolf2919 yes at least a billion. There is some speculation as to how Apple gets paid, but I guarantee you Apple does not put Google as a default search option on its ios devices at no charge. Some has speculated that Apple gets paid a percentage of what

    Google makes on a search but Morgan Stanley has said that they get a flat fee for each device they ship from Google and that worked out to about a billion dollars last year. I have read other stories where it is suggested that Apple makes much more. I suggest you Google it to find the news articles...just do it from your ios device! In any case, this may be why they don't spend the billions of dollars to buy or develop their own search engine that may or may not be successful and concentrate on their hardware products and collect the at least billion dollars from Google alone(they probably get payments from others too) and book it as pure profit since their is not cost on Apple part to do this.

  • Report this Comment On March 13, 2014, at 11:01 PM, yoyobozo wrote:

    In the short to medium terms, they'll likely focus on delivering superb experiences for iTV, iRadio, iWallet, iWearable, carPlay, and growing iAd into a formidable service. Data centers for serving digital contents, including ads, are being built. Pieces seem to be partially there. Though non-trivial, I don't think it's farfetched to see them entering the search scene in the longer term when these pieces mature more. The search service won't be as comprehensive as Google's. It'll probably be narrowly tailored, i.e. along the line of what they've been doing with Maps. It should deliver higher quality results and higher quality, highly targeted ads. Laser focus is the name of the game, IMO.

  • Report this Comment On April 17, 2014, at 4:59 AM, kayla563123 wrote:

    I usually get a great deal of concerns about how you can style straight hair. And seeing as my hair is super straight you'd believe I'd know <a href="">pa... dress 2014</a>

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Ashraf Eassa

Ashraf Eassa is a technology specialist with The Motley Fool. He writes mostly about technology stocks, but is especially interested in anything related to chips -- the semiconductor kind, that is. Follow him on Twitter:

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