"I think their search engine is the best," Apple (AAPL +0.94%) CEO Tim Cook said nearly two years ago when asked about Alphabet (GOOG +2.77%) (GOOGL +2.81%) subsidiary Google's controversial role as the default search provider in Apple products. The long-standing arrangement, which dates to 2005, wasn't always so controversial, but recent antitrust scrutiny of major tech companies has shined a light on the far-reaching implications of the partnership -- and how critical it is to Google's traffic.
With risks around the deal intensifying, it comes as little surprise that Apple is exploring the alternative option of creating its own search engine.
Image source: Apple.
Applebot has been more active lately
Financial Times reports that Apple is ramping up its development of a proprietary search engine that could theoretically displace Google as the default provider at some point in the future. Apple has historically outsourced embedded search functions to both Google and Microsoft Bing but has faced recent criticisms for partnering with Google while simultaneously bashing advertising businesses as part of its ongoing privacy crusade.
Years ago, Apple created Applebot, a web crawler that indexes web pages for Siri and Spotlight. It is similar to the technology that Google uses. Search pundits have observed a recent spike in Applebot activity, according to the report, which suggests that the Mac maker is scaling its efforts to index more websites as it builds a database.
Apple is also starting to increasingly display its own search results in certain parts of iOS 14, Financial Times notes.
The search partnership allegedly undermines competition
The Department of Justice filed a formal antitrust complaint against Google last week, alleging that Google engages in anticompetitive conduct, including its pact with Apple. The search leader uses the agreement to effectively block out competition, while Apple is paid handsomely (estimated at $8 billion to $12 billion per year) for its role, according to the suit.
"Google's documents recognize that 'Safari default is a significant revenue channel' and that losing the deal would fundamentally harm Google's bottom line," the prosecutors wrote. "Thus, Google views the prospect of losing default status on Apple devices as a 'Code Red' scenario."
The DOJ estimates that the deal covers approximately 36% of all search queries in the U.S. across mobile devices and desktop computers. The complaint also points out that Google estimates that nearly 50% of all search traffic came from Apple devices last year.
The payments from Google are one of the biggest growth drivers for Apple's services segment, and there are now fears that regulators could push to dismantle the alliance. Google calls the DOJ's arguments "dubious."
Should Apple acquire a search engine?
Over the summer, Bernstein analyst Toni Sacconaghi suggested that Apple should acquire privacy-oriented search engine DuckDuckGo in order to compete directly with Google in search. Apple could likely scoop up the smaller search company for less than $1 billion, according to the analyst's estimates.
However, that theoretical acquisition would end up costing Apple a lot more -- in the form of lost revenue from Google. Sacconaghi's estimate for how much Google pays Apple is on the lower end ($7 billion to $8 billion). Somewhat undercutting the idea is the fact that DuckDuckGo licenses Bing's web crawler technology, so purchasing the company may have limited strategic value, particularly if Apple is pushing forward with Applebot.
Apple has been aggressively insourcing "core" technologies in recent years in order to better differentiate itself from rivals. Should search be included on that growing list?
