Apple eyes major AI play that could disrupt Google

by Mark Gurman, Leah Nylen and Stephanie Lai

Apple Inc. is “actively looking at” revamping the Safari web browser on its devices to focus on AI-powered search engines, a seismic shift for the industry hastened by the potential end of a longtime partnership with Google. 

Eddy Cue, Apple’s senior vice president of services, made the disclosure Wednesday during his testimony in the US Justice Department’s lawsuit against Alphabet Inc. The heart of the dispute is the two companies’ estimated $20 billion-a-year deal that makes Google the default offering for queries in Apple’s browser. The case could force the tech giants to unwind the pact, upending how the iPhone and other devices have long operated.

Beyond that upheaval, AI is already making gains with consumers. Cue noted that searches on Safari dipped for the first time last month, which he attributed to people using AI. Cue said he believes that AI search providers, including OpenAI, Perplexity AI Inc. and Anthropic PBC, will eventually replace standard search engines like Alphabet’s Google. He said he believes Apple will bring those options to Safari in the future. 

“We will add them to the list — they probably won’t be the default,” he said, indicating that they still need to improve. Cue specifically said the company has had some discussions with Perplexity.

“Prior to AI, my feeling around this was, none of the others were valid choices,” Cue said. “I think today there is much greater potential because there are new entrants attacking the problem in a different way.”

The looming shift is a giant one for the iconic iPhone and a company with more than 2 billion active devices. Since Apple’s original smartphone launched in 2007, users have navigated the web by making searches through Google. Now, consumers will enter a universe dominated by AI from multiple companies.

Investors saw the testimony as a bad omen for both Alphabet and Apple, which may have to abandon a lucrative arrangement.

Alphabet shares tumbled 7.3% on Wednesday, their biggest decline since February. Apple shares also slumped on Cue’s comments, and were down 1.1% at market close. Google responded by saying in a blogpost it’s seen an increase in search queries from Apple devices.

Apple currently offers OpenAI’s ChatGPT as an option in the Siri digital assistant and is expected to add Gemini, Google’s AI search product, later this year. Cue said Apple also looked at Anthropic, Perplexity, China-based DeepSeek and Grok from Elon Musk’s xAI for this purpose. He said the agreement with OpenAI allows it to add other AI providers to the company’s operating system, including Apple’s own.

Eddy Cue, senior vice president of internet software and services at Apple, said the company is looking at refocusing on AI-powered search engines.

Before ChatGPT was chosen last year as part of Apple Intelligence in iOS 18, there was a “bake-off” with Google, Cue said. He said Google had provided a term sheet that “had a lot of things Apple wouldn’t agree to and didn’t agree to with OpenAI.” 

Technology is changing fast enough that people may not even use the same devices in a few years, Cue said. “You may not need an iPhone 10 years from now as crazy as it sounds,” he said. “The only way you truly have true competition is when you have technology shifts. Technology shifts create these opportunities. AI is a new technology shift, and it’s creating new opportunities for new entrants.”

Cue said that, in order to improve, the AI players would need to enhance their search indexes. But, even if that doesn’t happen quickly, they have other features that are “so much better that people will switch.”

“There’s enough money now, enough large players, that I don’t see how it doesn’t happen,” he said, referring to a switch from standard search to AI. 

Cue also said that large language models — the underlying technology for generative AI — will continue to improve, giving users more reason to change their habits.

Still, he believes Google should remain the default in Safari, saying that he has lost sleep over the possibility of losing the revenue sharing from their agreement. He said Apple’s pact with Google today for regular search still has the most favorable financial terms. 

Cue is in charge of offerings like iCloud, TV+ and Apple Music, but he’s also known as the company’s chief deal maker. Any losses from the search partnership being broken up would be reflected on the financial results for his division. The services group has been a major bright spot for the company in recent quarters as sales of hardware have slowed. The unit generated a record $26.6 billion during the March period. 

Cue’s group is likely to further lose revenue after a judge ordered Apple to allow developers in the US to pay for in-app items outside the App Store, costing Apple up to 30% of revenue on each transaction.

Last year, Apple and Google expanded their deal to include Google Lens integration as part of the Visual Intelligence feature on the latest iPhones. That allows a user to take a picture and use Google AI to analyze it. Cue also said that its agreement with Microsoft Corp.’s Bing — a non-default option in Safari — was recently amended to be a year-to-year arrangement.

Apple’s own AI technology has lagged behind those of peers. The company doesn’t have a AI search engine and has been forced to delay major upgrades to Siri that would have used a customer’s personal data to help fulfill queries. The company is holding its annual developer conference starting June 9, when it plans to introduce improvements to Apple Intelligence, its AI platform.

Copyright Bloomberg News