Tech giants "divorce"! Is Apple personally accelerating the "AI disruption crisis" of Google search?
Yesterday $Alphabet(GOOGL.US)$Alphabet - C(GOOG.US) plummeted due to news about "Apple focusing on AI search". Dolphin Research reviewed the Bloomberg article and identified two key points. Let's briefly discuss.
1. Is AI search eroding traditional search?
— Yes, currently mainly in user search share, which is one of the valuation pressure points Dolphin Research has repeatedly mentioned recently. While the short-term impact on advertisers' budget allocation is limited for now, Apple executives' remarks undoubtedly heightened market concerns about the disruption risk to Google search.
In April, Safari search volume declined for the first time, with Cue attributing it to AI search diversion. However, Google stated during its earnings call that overall search volume is increasing as AI Overview penetration rises, supported by third-party data on search activity.
Why do the two giants have opposite views?
Dolphin Research believes it’s likely due to platform differences. On mobile, AI app search experiences are seamless, making it easy for users to switch from Safari to AI chatbots or specialized search apps like ChatGPT and Perplexity, or even Google's Chrome or Gemini.
On PC, Chrome’s monopoly and user habits are more entrenched, which may explain Google’s claim of rising search volume.
However, this increase may have limited impact on Google’s monetization growth. As AI search commercialization remains immature, platforms haven’t yet figured out how to maximize ad monetization (AI search is more "result-oriented," reducing opportunities for monetizable links). Thus, both ChatGPT and Perplexity rely on paid models.
To mitigate AI search’s erosion, Google has limited AI Overview penetration in high-value sectors like finance, tourism, and healthcare. Meanwhile, the lack of ads from AI competitors has made Google’s AI Overview ad slots scarcer, indirectly raising CPC.
Regardless, AI search will inevitably erode traditional search share. Future searches may be fragmented across AI apps or even disappear as AI Agents complete tasks autonomously.
In other words, the more task-oriented Agents there are, the more they will compress traditional search’s value, even if direct ad monetization remains challenging.
2. Is Google’s position in Apple’s ecosystem weakening?
— No. Cue confirmed Google remains Safari’s default search engine, and its commercial ecosystem ensures minimal impact for now.
Cue’s logic: AI search affects Safari, so Safari needs more AI search providers. Among them, Google’s ecosystem and user experience are superior, so the default position stays unchanged.
Implied: If a better provider emerges, Apple might reconsider.
Dolphin Research notes Cue emphasized "Google currently offers the best experience," referring not just to UX but also its ad ecosystem. Safari isn’t charity—it prioritizes monetization potential, and Google still leads in this regard.
While ChatGPT and Perplexity excel in UX, their paid models can’t match Google’s ad-driven revenue. For example: Google pays Apple 36% of Chrome search revenue on iOS. Based on 2022’s $20B payout, Google’s iOS search revenue was ~$55B (1/3 of total search revenue).
With 1B Safari users, each would need to pay $55/year—a steep ask, especially in emerging markets. Without robust ad monetization, AI search’s $55B revenue (after Apple’s cut) may not cover inference costs and ops. OpenAI, with 500M MAU (1/6 of Chrome’s), spent $4B on inference last year. Scaling to Safari’s 1B users could cost $8B+, making pure-subscription AI search unsustainable.
Building such an ad ecosystem is beyond most AI startups, so focus remains on OpenAI or Google itself. But Google won’t disrupt itself without a solid plan.
In summary, Cue’s remarks forced Google investors to confront AI search’s latent threat. While user-side impacts are visible, the commercial gap between traditional and AI search persists. Apple, being shrewd, hasn’t changed Google’s default status.
"AI search disruption" hangs like the Sword of Damocles. Its fall depends on Google’s product focus and willingness to self-disrupt. With Google’s antitrust hearings ongoing, market sentiment is hypersensitive—perhaps overly so.
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