Apple Said to Talk With Microsoft Over IPhone Search

Jan. 20 (Bloomberg) -- Apple Inc. is in talks with Microsoft Corp. to replace Google Inc. as the default search engine on the iPhone, according to two people familiar with the matter.

The talks have been under way for weeks, said the people, who asked not to be identified because the details aren’t public. The negotiations may not be concluded quickly and might still fall apart, the people said.

The discussions reflect the intensifying rivalry between Apple and Google, currently the main search engine on the iPhone. While the companies have worked as partners in the past and Google Chief Executive Officer Eric Schmidt served on Apple’s board, they now compete in markets such as mobile phones. Google introduced its Nexus One phone this month and offers a mobile operating system called Android.

“To the extent that it threatens Google, such a deal would be good for Apple,” said James McQuivey, an analyst at Cambridge, Massachusetts-based researcher Forrester Research Inc.

Apple is also working on ways to manage ads displayed on its mobile devices, a move that would challenge Google’s advertising business, one of the people said.

Frank Shaw, a spokesman for Redmond, Washington-based Microsoft, and Katie Cotton, a spokeswoman for Cupertino, California-based Apple, declined to comment. Google spokeswoman Katie Watson also declined to comment.

Microsoft, the world’s largest software maker, fell 52 cents to $30.59 at 4 p.m. New York time in Nasdaq Stock Market trading. Apple declined $3.32 to $211.73. Google, based in Mountain View, California, dropped $7.21 to $580.41.

Bing Default

A deal between Apple and Microsoft would likely mean iPhone owners would automatically get Microsoft’s Bing as the main search engine, possibly requiring them to actively change the phone’s settings if they want to search using Google.

Google is now the default engine on the iPhone. To search via Bing, users need to go to the Bing Web site through the phone’s Web browser or download a separate Bing application.

Being the default search engine on the iPhone generates sales for Google, which collects revenue from ads placed alongside its search results. To clinch the deal, Microsoft may be willing to share more revenue with Apple, one of the people said. Apple and Google don’t disclose the financial terms of their search partnership.

Market Share

Taking the default spot on the iPhone would also help Microsoft gain market share for Bing. Of people who use their phones to search the Web, 86 percent used Google in November, compared with 11 percent for Bing, according to New York-based Nielsen Co.

Cooperation between Apple and Microsoft isn’t unprecedented. Microsoft sells Mac versions of its Office suite of business programs. When Apple co-founder Steve Jobs returned to the company in 1997, one of his first acts was to settle intellectual property infringement claims with Microsoft in exchange for $150 million and a promise from Microsoft that it would continue developing Office for the Mac.

To contact the reporters on this story: Peter Burrows in San Francisco at peter_burrows@businessweek.com; Cliff Edwards in San Francisco at cliff_edwards@businessweek.com