Author: Wall Street Insight
On Wednesday during U.S. trading, Alphabet, Google's parent company, saw its stock plummet, with losses rapidly expanding, at one point dropping over 9%. Apple's stock turned negative during the day, with intra-day losses exceeding 2%. The declines of Google and Apple caused the broader U.S. stock market to drop, with the Nasdaq 100 turning negative after having gained 1% in after-hours trading the previous day.
On the news front, Apple is 'actively considering' a major overhaul of the Safari browser on its devices, focusing on an AI-driven search engine. This decision could end Apple's long-standing partnership with Google, triggering significant changes across the industry and posing a serious challenge to Google's dominance in the search field. The era of Google-dominated search may be coming to an end.
Alphabet, Google's parent company, closed down nearly 7.3% on Wednesday, finishing at $151.38.
Eddy Cue, Apple's Senior Vice President of Internet Software and Services, revealed the above news while testifying in the U.S. Department of Justice's antitrust lawsuit against Alphabet on Wednesday.
The core of the U.S. Department of Justice lawsuit is an agreement between Apple and Google valued at about $20 billion annually, which makes Google the default search engine on Apple devices. If they lose the case, it could force the two tech giants to dissolve their cooperation agreement, disrupting the way devices like the iPhone have operated for a long time.
Entering AI search
The acceptance of AI among consumers is also continuously increasing. Eddy Cue pointed out that the search volume in the Safari browser saw a decline for the first time in April this year, attributing this to users turning to AI.
Eddy Cue stated that he believes AI search providers, including OpenAI, Perplexity, and Anthropic, will ultimately replace traditional search engines like Google. He thinks Apple will include these providers in Safari's options in the future.
We will add them to the list, but they may not become the default option. These products still need further enhancement.
Before AI emerged, I thought other search options were unreliable. Now I feel there is greater potential because new players are solving this problem in different ways.
Currently, Apple offers OpenAI's ChatGPT as an option in Siri, with the agreement allowing Apple to include other AI providers in its operating system, including its own.
Before ChatGPT was selected as part of 'Apple Intelligence' in iOS 18 last year, Apple also conducted a 'pitch' with Google. Cue said that Google provided a list of terms at that time, 'many of which Apple could not accept, and which were not present in the agreement with OpenAI.'
Cue stated that Apple has also explored Anthropic, Perplexity, China's DeepSeek, and Musk's xAI's Grok. Cue specifically mentioned that Apple has had some discussions with Perplexity. Additionally, Cue expects to join Google's AI search product Gemini later this year.
Cue pointed out that AI search engines need to improve their search indexes to truly enhance performance. But even if these improvements cannot be realized quickly, some of their other features are already 'strong enough to make users willing to switch.' Regarding the transition from traditional search to AI search, Cue stated, 'Now the capital is ample, and the players are large; I see no reason why this transition wouldn't happen.'
Cue also mentioned that large language models will continue to improve, which will further encourage users to change their usage habits.
Review of Old Partnerships
Nevertheless, Cue still believes that Google should continue as the default search engine for Safari and candidly admitted that he has lost sleep worrying about the revenue sharing that would come from losing this agreement. He noted that the current agreement Apple has with Google for regular search still has the most favorable financial terms.
Last year, Apple expanded its collaboration with Google, integrating Google Lens into the latest iPhone's 'visual intelligence' feature, allowing users to take photos and analyze images through Google's AI.
Cue also stated that the agreement between Apple and Microsoft's Bing has recently been modified to a yearly renewal format. Bing is a non-default option in Safari.
Cue stated in court that the pace of technological change is so rapid that people may not be using current devices in a few years.
In ten years, you might not even need an iPhone, although it sounds crazy. True competition arises only when technology undergoes transformation. Technological transformation creates opportunities. AI is a new technological transformation, creating new opportunities for new entrants.
How does the market interpret this?
Media analysis suggests that this significant change is crucial for the iPhone and Apple, which has over 2 billion active devices. Since the launch of the first iPhone in 2007, users have relied on Google's search engine to go online. Now, users are entering a new search era dominated by multiple AI companies.
The market viewed Eddy Cue's testimony as a signal of the challenges facing both Alphabet and Apple, as they might have to abandon this lucrative arrangement. This also explains why, on Wednesday, in addition to Google's sharp decline, Apple's stock also experienced an intra-day drop of over 2%.
Apple's own AI technology has always lagged behind its peers. The company does not yet have its own AI search engine and has been forced to delay significant upgrades to Siri, which were originally planned to leverage users' personal data to assist with query tasks. Apple will hold its annual developer conference on June 9, at which it plans to launch an improved version of its AI platform 'Apple Intelligence'.