Author: Wall Street Insights
During Wednesday's US stock trading, Alphabet, Google's parent company, saw its stock price plummet, with the decline rapidly expanding to over 9%. Apple's stock also turned negative, dropping more than 2%. The downturn of Google and Apple led to a decline in the US stock market, with the Nasdaq 100 turning negative after previously rising 1% in the after-hours trading.
According to reports, Apple is "actively considering" a major overhaul of Safari browser on its devices, with a focus on AI-driven search engines. This decision could end the long-standing cooperation between Apple and Google, triggering a significant industry transformation and posing a serious challenge to Google's dominant position in search. Google's search era may be coming to an end.
Alphabet, Google's parent company, closed down nearly 7.3% on Wednesday at $151.38.
Apple's Senior Vice President of Internet Software and Services, Eddy Cue, revealed this information while testifying in the antitrust lawsuit filed by the US Department of Justice against Alphabet.
The core of the US Department of Justice's lawsuit is an agreement worth approximately $20 billion annually between Apple and Google, which makes Google the default search engine on Apple devices. If lost, the case could force these tech giants to terminate their cooperation agreement, disrupting the long-established operation of devices like the iPhone.
AI Search Enters the Scene
AI's acceptance among consumers is continuously increasing. Eddy Cue noted that Safari's search volume declined for the first time in April this year, which he attributes to users shifting to AI.
Cue believes that AI search providers, including OpenAI, Perplexity, and Anthropic, will ultimately replace traditional search engines like Google. He suggests that Apple may include these providers in Safari's options in the future:
We'll add them to the list, but they may not become the default option. These products still need further improvement.
Before AI, I didn't think other search options were reliable. Now, I see greater potential because new players are solving the problem differently.
Currently, Apple offers OpenAI's ChatGPT as an optional feature in Siri, and their agreement allows Apple to incorporate other AI providers, including its own.
Before ChatGPT was selected as part of "Apple Intelligence" in iOS 18, Apple had "compared notes" with Google. Cue said that Google provided a list of terms, "many of which Apple could not accept, and these terms were not present in the agreement with OpenAI."
Cue mentioned that Apple has also explored Anthropic, Perplexity, China's DeepSeek, and Grok from Musk's xAI. He specifically noted 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 indexing to truly enhance performance. However, even if these improvements cannot be quickly implemented, some of their other features are already "powerful enough to motivate user change". Regarding the migration from traditional to AI search, Cue stated, "With ample capital and large players, I don't see why this transformation wouldn't happen."
Cue also believes that large language models will continue to improve, which will further drive changes in user habits.
Review of Existing Cooperation
Despite this, Cue still believes Google should remain the default search engine for Safari and candidly admitted to losing sleep over concerns about losing the revenue sharing from this agreement. He says that the current agreement between Apple and Google for conventional search still offers the most optimal financial terms.
Last year, Apple expanded its cooperation with Google by integrating Google Lens into the latest iPhone's "visual intelligence" feature, allowing users to take photos and analyze images through Google AI.
Cue also stated that Apple's agreement with Microsoft's Bing has recently been modified to an annual renewal format. Bing remains a non-default option in Safari.
Cue testified in court that technological change is so rapid that people might not even use current devices in a few years:
In ten years, you might not even need an iPhone, which sounds crazy. True competition only emerges with technological transformation. Technology transformation creates opportunities. AI is a new technological transformation creating new opportunities for new entrants.
Market Interpretation
Media analysis suggests that this is a significant transformation for iPhone and Apple, with over 2 billion active devices. Since the first iPhone's launch in 2007, users have relied on Google's search engine. Now, users are entering a new search era dominated by multiple AI companies.
The market views Eddy Cue's testimony as a signal of challenges for both Alphabet and Apple, as they might have to abandon this lucrative arrangement. This explains the stock price decline of both Google and Apple on Wednesday.
Apple's own AI technology has lagged behind competitors. The company has not yet developed its own AI search engine and was forced to postpone major Siri upgrades that were originally planned to use personal data to assist with queries. Apple will host its annual developer conference on June 9th, where it plans to unveil improvements to its AI platform "Apple Intelligence".
