Apple Inc. (NASDAQ:AAPL) revealed something amazing at WWDC 2015. It wasn’t the firm’s streaming service Apple Music, nor was it the big moves Apple Pay is making into global markets. What Apple revealed at WWDC was no less than a full-blown attack on Google Inc (NASDAQ:GOOG), (NASDAQ:GOOGL) core search business. It’s going to take a long time to put together, but once it’s in place it may make Cupertino, rather than Mountain View, the center of the world’s information hub.
On Wednesday Axiom Capital Markets analyst Victor Anthony released a report that called for a slow down in core business at Google. He said that though Apple won’t be a competitive risk in the short term, “Longer-term there is a risk that Apple could be successful and impact Google.” At the same time, rumors are spreading that Google’s decline in recent months may be purposeful.
Apple sticks its head into search
Applebot has been crawling webpages for the better part of the year. Web developers noticed the bot, which seems to be programmed in Google’s Go language, last year. Apple made it official on May 5 of this year, but its purpose wasn’t clear. For years tech commentators have been forecasting the creation of an Apple search engine, what we got was much more revolutionary.
Apple unveiled many new features of Spotlight and Siri search at the WWDC 2015 keynote on June 8. Two things came out of the presentation. First, Spotlight and Siri are coming together into a cohesive whole, with one based in text on the other on voice, and second, they’re becoming much much more powerful.
The tools will allow iPhone users to search for data both in-app and on the web through Apple’s search tools. It will also, using the AI that’s been developed so carefully with Siri, be able to interpret natural language, making it a much more user friendly tool than anything Google is offering right now. There are problems with the idea, however.
Apple can’t turn into Google
Apple isn’t going to collect as much data as Google, unless it changes the hard line it has taken on privacy. IHS technology analyst Ian Fogg described Tim Cook’s venture into search in less than optimistic terms.”Essentially what Apple is aspiring to do is deliver an experience as smart as the opposition while having one hand tied behind their back,” he said, referencing the firm’s inability to replicate the features of Google Now.
Mr. Cook has come out strongly in favor of privacy and keeping user data out of the hands of those with something to sell. That’s one of the reasons that some of the firm’s services, including its new entry into News, simply can’t be as strong as Google’s. If you don’t collect and analyze as much data, your search can’t be as good.
What that misses, however, is that in order to kill Google’s power in search the firm doesn’t need its search to be better than Google’s across the board. All it needs is to hit Google in some key common search areas. That’s exactly where Spotlight and Siri are going to start out this year, and it’s going to eat marginally into Google’s share of the search market.
With the deck already stacked against Google, Apple expanding into the market is the kind of marginal change that can set big forces to work. Those forces are already in motion and Google is on the defensive as a result.
Google loses its moat
A competitive moat is the amount of defense a firm has around its business. Years ago, Google had the best moat possible. It had a great relationship with users and was the only place to go for both ad and publishing clients.
Facebook is now growing faster than Google in the ad market in some segments, with more marginal dollars heading to Menlo Park than Mountain View. A report fro Ken Sena at Evercore partners, published on June 4, showed that Facebook was about to pass out Google as the top referrer to the most popular web content.
On his blog late last year Ben Thompson, a veteran of the search market, brought “Peak Google” to the minds of those watching the industry, and the idea made its way quickly onto Wall Street. Shares in Google have lost more than 10% of their value in the last twelve months, and Mr. Thompson is well able to explain why.
“Google is quite safe when it comes to search, and that they will be a very profitable company for the foreseeable future. I just suspect we will all think differently about that dominance when it’s a small percentage of total digital advertising,” he says.
Google is an ad business, and its moat in selling digital ads was built on a dominance in search. It’s dominance in search was shored up by its hold on the phone market in recent years. As more and more services, like Facebook, keep users off of the web and away from web search, less and less ads are going to go the firm’s way.
Mr. Anthony, who wrote the report for Axiom Capital published this morning, says that “partnership losses, on the whole, are becoming a material risk for Google.” He was referring to the loss of Google traffic from deals with Mozilla, and other firms that have favored Microsoft in recent years.
Google slows down to save itself
There is a dissenting view about the decline of Google. Jamie Hill, CEO of adMarketplace reckons that the firm’s loss of share in the search market in recent months has been on purpose, and that the firm needed to do it in order to save itself.
Europe, where Google still commands a dominant position in search, is looking into the firm in order to see if it competes fairly with other service providers. In the US any move like that would look ridiculous. Google only has a 64.4% of market share in America after losing key deals to keep its search engine as the default option.
“The absolute last thing Google wants, or needs, is to have their operations split up, or to face down increased federal scrutiny,” Hill wrote, “Scaling back their search engine market share, and in turn slowing down growth a bit for the year, is likely a strategic move aimed at maintaining dominance in the coming decades.”
Apple takes on Google
Whether Google is pulling back from the search market because the firm has reached the peak of its power or because it wants to make sure the state does not stick its nose into its business has the same effect on Apple. The firm taking the opening afforded by Google in order to get into the search market.
Once Spotlight and Siri are built up and refined Apple will be able to keep people away from the web and well away from Google. With so much of the smart phone market at hand, the company will be able to exploit Google weakness and it will be able to take a portion of the market that Google will never see again.
What it does with it, seeing as Tim Cook still hates the idea of putting ads on the iPhone, remains to be seen, but Siri is already a buying factor for the iPhone for many people right now. Making it better will surely add to the appeal of the smart phone.