Apple's Spotlight: Jumping Ahead of Google in Search

Has Apple finally figured out search? With the redesign of Apple's Spotlight app, Cupertino has devised a way to "skim" search business from Google, while at the same time leaving the Mountain View search behemoth in the Safari search bar. Investors need to understand Cupertino's brilliant strategy.

Jun 10, 2014 at 2:30PM

A major redesign to Apple's (NASDAQ:AAPL) Spotlight application, introduced at WWDC, shows Cupertino is moving aggressively into Internet search on the desktop and in mobile. In addition, the incorporation of Spotlight into the Safari browser enables Apple to use its tightly controlled ecosystem to grow its search business, while guiding users away from Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) portfolio of search products.

Spotlight before Yosemite OS X: Search your device
Past versions of Spotlight provided device-based search, allowing the use of keywords and phrases to locate content residing on a user's Mac, iPhone, or iPad. Examples of searchable items include applications, documents, music, images, email, text messages, and webpage history.

Predictive search, a key feature of the application, is used to display search results as users types their queries -- with results refining as the query becomes more specific. Because users are viewing results in real-time -- an item can be "grabbed" as soon as it appears, or in the case of a difficult-to-find item, users can continue to refine keywords on the fly until the data is found.

Yosemite OSX Spotlight: Search the Internet
In OS X Yosemite, Spotlight has been redesigned to include Internet search functionality, with Microsoft's Bing used as the default search engine. Spotlight further enhances search results by including relevant information from Apple Maps, iBooks, iTunes, and the App Store. In addition, data from third-party services such as Yelp and Wikipedia finds its way into Spotlight results. Like previous versions, Yosemite's Spotlight uses predictive search functionality, but now potential search results from the Internet are also displayed.

Spotlights most significant change is its integration into Safari's URL search bar, allowing Spotlight to display search results prior to the initiation of a traditional Google search. In terms of Steve Jobs' famous threat of going "thermonuclear" on Google, this may be Apple's biggest attack to date.

Cupertino, however, is clearly unwilling to risk the ire of Google search users with the company's new application -- Spotlight results can be ignored and a Google search initiated by hitting the return key. But, the fact remains that Apple has created a search process that gives the company "first crack" at each search query, while avoiding the backlash of removing Google search from Safari. The result? Apple is able to skim some Safari search business, while continuing to hone the company's search chops.

It's important to note that the new Spotlight design is also a part of Apple's upcoming iOS 8 release. Combined with Siri, Apple's voice-based search application, Spotlight effectively closes the loop on the company's mobile search capabilities.

A Spotlight example
During the WWDC keynote, Apple provided a demonstration of Spotlight search that highlighted the application's potential value to users and its ability to end-run Google Search. When a user begins entering a keyword, say "sushi," into Safari's search bar, the Spotlight results window displays, in real time, a mapping of local sushi restaurants along with reviews, photos, and driving directions. In this example, once a restaurant is selected, reservations can be made and turn-by-turn directions forwarded to the user's iPhone without ever leaving the Spotlight search ecosystem.

Key points for investors
Apple generated revenue of $171 billion for fiscal year 2013. Given the scale of its business, Apple needs to aggressively move into new business categories if the company hopes to again achieve double-digit growth. The redesign of Spotlight indicates that desktop and mobile search are now in play as a serious business category for Cupertino. Apple's new search strategy puts Microsoft in an excellent position to grow its search business, especially in mobile, where Apple's iPhone and iPad dominate mobile Internet traffic. The company's "partner strategy" for search means third-party search apps, like Yelp, are becoming increasingly important. App developers will have significant incentive to create targeted, niche search solutions that can be incorporated into Spotlight.

Interested investors would be wise to monitor the success of Spotlight, given the potential revenue opportunities the application presents to Apple, existing partners, and potential new partners.

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