Why Apple Needs an iPhone Search Engine

Piper Jaffray analyst Gene Munster believes there's a "70% chance" that Apple (AAPL) will build its own search engine. The idea, Munster says, is to "protect data" generated by iPhone searches instead of ceding it all to Google (GOOG). Reductive analysis? Yes. But he's on to something -- he just doesn't know what. Here's how to glean something useful from this prediction.

Munster delivers his argument with all the delicacy of a catapult, betraying (as CrunchGear gleefully points out) a serious confusion about exactly what a "search engine" is. But even if his conclusions are bungled, he's responding to a very real burgeoning issue: it's getting harder and harder to find stuff with the iPhone.

Here's the user scenario: if you want to find local businesses or locations, you need to search the Maps app. If you want to find new software, you need the (rather ineffectual) App Store search. Music? The iTunes Music Store app. Web search? Safari's Google search. Then there's the iPhone's Spotlight search feature, which is a pretty poor simulacrum of the Mac's same feature. In other words, there are too many ways of searching with the iPhone, and all of them are growing increasingly unwieldy as they're forced to filter more apps, songs, and local files.

Munster argues that Apple is trying to wean itself from Google-reliance, mostly in the Maps department, and that's true. But starting a Web search engine from the ground up (even with the purchase of an extant engine like Cuil) would be prohibitively expensive and plainly stupid. What Apple really needs -- and what it might be working on -- is a unified iPhone search service that it can monetize with hyperlocal ads.

Such a feature -- think of it as "Super Spotlight" -- would have to deal with a lot of data: songs, apps, Web results (probably delivered via Google), emails and so on. To make such a feature feasible, it would need to dovetail with Apple's impressive Genius software, relying on the iPhone's own data to decide how to deliver your results (nod to Munster for acknowledging the iPhone could use its own data to supplement searches). Super Spotlight would look at recently played artists to deliver iTunes results; it would use frequency and recency of contact to filter emails and Address Book entries; it would use keywords from your email and SMS log to narrow Web search results.

Of course, the motivator of Super Spotlight isn't just a better user experience, and it's not about "protecting data" as Munster says. It's about delivering targeted ads. Apple acquired mobile advertising platform Quattro in January for $300 million, a non-trivial sum even for such a cash-flush company; the company clearly has big plans for delivering its own ad units, which some outlets have preemptively dubbed "iAds." As MediaPost points out, the mobile ad sector is still small, but an Apple-driven platform could deliver a unified, serious and straightforward model that could introduce real profitability to the currently-fragmented market. With a Super Spotlight feature, Apple could offer ad partners targeted ad units based upon geographical location, App Store and iTunes Genius profiles, Mail message content and other data. (They'd be infringing upon a Google patent in the process, but that's the price of business in the Valley.)

Seeing as Apple's product development process is a black box, all this talk of unified search is, of course, speculative -- but other companies are moving in the same direction. As I've argued, Google's plan for free high-speed broadband in some U.S. cities is a similar ploy for a captive ad audience that can receive rich (i.e., profitable) and hyper-targeted ads. The large, gorgeous screen on the iPad (and rumors of an "HD" iPhone) are opportunities for similarly rich and profitable mobile ad units, and Apple has already applied for a patent on an ad-supported version of the Mac OS. In short, Cupertino isn't trying to extricate itself completely from Google; it needs its best-in-industry search results too much. It's simply taking a page from Google's AdWords playbook by trying to put its yoke on a lucrative, inchoate ad market.