Why It Is Imperative For Apple To Build Its Own Search Engine

This is a guest post from Gary Sharma (aka “The Guy with the Red Tie”), founder & CEO of GarysGuide

This is a guest post from Gary Sharma (aka “The Guy with the Red Tie”), founder & CEO of GarysGuide and proud owner of a whole bunch of black suits, white shirts and, at last count, over 40 red ties. You can follow him at @garysguide and reach him at gary [at] garysguide.com.

Unless you’re living under a rock, you know that Apple last week announced its quarterly earnings and the entire tech industry let out a collective gasp and then promptly went into a swoon. Apple’s now overtaken Exxon as the world’s most valuable company and has almost $100 billion in cash reserves. Thats higher than the market cap of 474 of the S&P 500 companies. Apple’s been very careful when it comes to spending its cash. Expect it to continue the trend of locking in a better deal on components in its supply chain boosting its own profit margins and increasing prices (and scarcity) for competitors. Also expect it to snap up important IP that can provide a generational leap to advance core features of its hardware (camera, screen, battery, memory, CPU). Beyond that (‘n all the cool wearable computing rumors), one of the things thats imperative for Apple to do (if its not doing it already) is to finally build its own search engine. Here’s why.

Google Is Enemy No. 1
Google and Apple started off as best friends with a common enemy, Microsoft. As things become more competitive, that relationship turned into more of a frenemies sort, you know, like Paris and Nicole. That is until Google launched Android, an iPhone/iOS competitor, and a direct shot across Apple’s bow even as Google CEO Eric Schmidt was still on the Apple board. To say that Steve Jobs was furious is an understatement. I believe his exact words were “I am willing to go thermonuclear on them” and “spend every penny of Apple’s $40 billion in the bank, to right this wrong”.

Google search, maps and video have been tightly integrated into the iOS experience since the very beginning. And I’m sure this can’t be making the folks at Apple happy at all. And don’t forget, Apple really, really likes having end-to-end control over what goes into its products. Apple has already quietly snapped up mind-blowing 3D map maker C3 Technologies and mapping company Placebase. So an Apple maps offering is inevitable probably in their next major iOS update, and having their own search engine to go hand-in-hand with that seems logical.

Call it premature or prescient but many are touting Siri as the future of search. We are still in the first version of Siri but it is not difficult to extrapolate how in future versions, as it gets better, it can hook into data from different apps and bring us back exactly what we were searching for without ever going to a search engine. But for now, when Siri doesn’t have an answer (which is more often than not) it defaults to Google for search results. Again something that I’m sure Apple is not happy about. Siri also seems to be accumulating and crunching vast amounts of data and this has a direct effect on improving its results. So integrating their own search engine at the back end instead of Google’s would be the smart thing for Apple to do.

Google Is Vulnerable
It’s no secret that Google search results quality has been deteriorating for a few years now and despite the Panda update they seem to be fighting a losing battle against SEO spam. But they have still been passably good or at least on par with the competition to prevent any mass exodus. But with the recent update of integrating Google+ into their main search results while ignoring data from social competitors Twitter and Facebook and the increasingly prominent placement of Google properties such as Places at the expense of direct competitors like Yelp means that Google has finally gone bat shit crazy and sacrificed their hard earned reputation in search quality for a desperate attempt at jumpstarting Google+ as a reply to Facebook’s rising web dominance. Add to that the fact that the Feds are supposedly taking a closer look at it for potential anti-trust violations and the brouhaha over its recent privacy policy changes and you can see how, more so than ever before in its short 15 year history, Google is today vulnerable and ripe for disruption.

Anything That Weakens Android …
The biggest chunk of Apple’s revenues and profits (and the fattest margins), by far, come from iOS products, especially the iPhone, which accounts for over 50% of its revenues. The biggest competitor that the folks at Apple spend sleepless nights over is probably Google’s Android. The biggest chunk of Google’s revenues (an astounding 97%) comes from search and ads. Google’s revenues from Android are minimal. Google has never really had a credible threat to its core bread ‘n butter business of search. But if Apple were to throw its weight (and cash) behind launching a search engine, it could have the folks at Google dropping Android ‘n Google+ like hot potatoes (or at least putting them on the back burner) and scurrying back and doubling down to protect the moat around their search castle.

Spreading Innovation Across Its Ecosystem
Apple (unlike Google ‘n others) doesn’t like to spread the peanut butter too thin across too many initiatives. It has historically always focused on keeping its product line simple and streamlined. And in a similar vein, it has always focused on innovating around a few key features with the dual purpose of creating something that is a) disruptive and b) can be rolled out across its ecosystem of products. Examples of this are iOS, touch computing, Airplay, the App store, retina display, thunderbolt and even innovation in design and aesthetics. And I think Siri with a full fledged search engine behind it would be something that Apple would love to eventually integrate across all its products.

Search (And Ads) Are A Big Market
The total online ad spend is expected to reach almost $50 billion by 2015. When you are a company doing the revenues that Apple does, entering any new market means justifying how the potential upside will swing the needle for the company’s overall revenues and profits. And we all know Apple is razor focused on generating revenues (and profits) because it knows thats what gives it the buffer to innovate. And television and search seem the two most likely big markets adjacent to Apple’s current offerings that it could turn to next. iAds may not have taken off but it showed that Apple was interested and I’m positive it wants to take another swing at it. [1]

Mobile First
According to a recent Comscore report, Google has around 65 percent market share in web search. But a big chunk of that is desktop and laptop search. Mobile is a whole different ball game and one that is very much up for grabs. iOS and Android may be fighting it out in terms of share of installations but when it comes to actual usage and traffic, its no contest. iOS has the lion’s share of around 58.5 percent of all mobile traffic (including a whopping 97.2% of all tablet traffic) while Android only accounts for 31.9 percent. Add to that the fact that mobile as a percent of overall web traffic is rising very rapidly (now almost 7%) and that mobile (iOS) is central to Apple’s products, dominance and revenues, and it makes sense for Apple to take a shot at mobile search.

The Twitter Firehose
When Apple launched Ping (its feeble attempt at a social network), it initially turned to Facebook. But the two couldn’t quite work things out. Fast forward a couple of years, and Apple now has Twitter deeply integrated into iOS. If Apple were to launch its own search engine, integrating the Twitter firehose into its results could give it an instant advantage over Google (who couldn’t come to terms with Twitter on a deal).

The Apple Brand And Its Halo Effect
The Apple brand has never been stronger, more trusted, more beloved and with a universal appeal on a global scale as it is today (despite what all the fandroids will have u know ;)). And it is very much associated with innovation. There is a reason why the tech world waits with bated breath to see what Apple will announce next. It has earned that reputation. Which means that unlike Microsoft trying to push Bing by throwing around big marketing dollars, if Apple were to launch a new search engine it won’t have to do much of a hard sell. Everyone, and I mean everyone, is going to take it for a spin. After that it will have to stand on its own merit, and if its a clunker like Ping, it will tell. [2]

And Finally … The Gang Of Four
Last year, at the AllThingsD conference, then Google CEO Eric Schmidt made an interesting observation about the ominous sounding ‘Gang of Four’ that are dominant in the tech ecosystem today – Apple, Google, Amazon and Facebook – and how each of them is rapidly encroaching into each others businesses. There was a time when you equated Google with search, Facebook with social and Amazon with e-commerce. Not any more. With Google snapping up phone manufacturer Motorola, Facebook contemplating its own mobile phone (and a rumored search engine) once it clears the IPO fence and Amazon aggressively rolling out wannabe iPad competitor Kindle Fire, it would be foolish for Apple to take the risk of having any aspect of its business model too highly dependent on any of them.

Its like Muhammed Ali, Joe Frazier, Evander Holyfield and Mike Tyson are all in the ring at the same time. The gloves are off and the battle for tech supremacy is on. This is no time to pull the punches. This is time for war.

[1] Apple doesn’t enter a new market just because they can or because it has potential upside for revenues & profits. They have shown remarkable discipline of only entering markets where they can a) disrupt the status quo with a quantum leap of innovation b) leverage and strengthen its existing ecosystem of products. Search + Siri might be just that ticket.

[2] The failure of Ping (and lukewarm reception of iCloud precursor MobileMe) drives home the fact that not everything Apple touches turns into gold, especially when its a little bit outside their comfort zone. Hence an acquisition of a company such as DuckDuckGo, Blekko or even Twitter might make a lot of sense. Heck if Apple bought Twitter AND Square (not an impossible scenario), that might mean Jack Dorsey going to Apple and being groomed as a potential Steve Jobs heir apparent. Now THAT would be interesting. Why It Is Imperative For Apple To Build Its Own Search Engine