Microsoft's new Bing may force Google to 'pay up' to be Apple default: analyst
Yongyuan Dai

Microsoft's (NASDAQ:MSFT) artificial intelligence-related changes to its Bing search engine have become cause for notice at Google (NASDAQ:GOOG) (NASDAQ:GOOGL). While it's unlikely Microsoft unseats Google's dominant position anytime soon, the tweaks could force Sundar Pichai and company to pay up for its spot with Apple (NASDAQ:AAPL).
Barclays analyst Ross Sandler said if Microsoft (MSFT) is actually at the negotiating table when it comes to being the default search option for Apple's (AAPL) mobile operating systems, the "most likely scenario" is Google (GOOG) (GOOGL) winds up paying more for the spot than it already does.
"Every [five] points of TAC rate increase (vs. gross iOS search revenue in the TAC zone) would weigh on Googleâs [operating income] by 3%," Sandler, who rates Google shares (GOOG) (GOOGL) overweight, wrote in an investor note.
Sandler estimated Google (GOOG) (GOOGL) generates roughly $46B of its $78B in operating profit from iOS, which comes from both Safari and the organic iOS channel.
The other scenario, albeit considered "unlikely" by Sandler, is if Bing were to supplant Google as Apple's (AAPL) default search option, it could be a much more significant impact, impacting the tech giant's operating income by as much as 11%.
If Microsoft's (MSFT) Bing were to supplant Google (GOOG) (GOOGL) as the default option in just Europe, Middle East and Asia, it could hit Google's operating income by 7%. Changes for the U.K. and Latin America would result in a 1% impact to operating income, assuming the company doesn't recapture any lost queries, the analyst added.
"While bringing Bing into the mix doesnât really solve the regulatory backdrop, as it would be simply moving one exclusionary contract between two mega-cap tech players into two contracts between three mega-cap companies, it would certainly cause a much more competitive environment in search," Sandler wrote in an investor note, adding that Apple (AAPL) has "every incentive" to maximize the value of its position.
Google (GOOG) (GOOGL) recently released its Bard chatbot for public use.