Apple Inc. (NASDAQ:AAPL)‘s Siri digital assistant will start using Microsoft Corporation (NASDAQ:MSFT)‘s Bing search engine over Google Inc (NASDAQ:GOOG)‘s when its new mobile operating system comes out later this year. Microsoft appears to be doing a good job exploiting the old saying, “The enemy of my enemy is my friend.”
A Tense Friendship
Apple Inc. (NASDAQ:AAPL) and Google have risen to prominence together, much the way that Microsoft and Intel Corporation (NASDAQ:INTC) did in the personal computer market. However, Microsoft Corporation (NASDAQ:MSFT)’s Windows operating system and Intel Corporation (NASDAQ:INTC)’s chips were complementary products and didn’t compete with each other. Apple and Google, on the other hand, have increasingly competed head on.
For example, including Google Inc (NASDAQ:GOOG)’s industry leading search engine in the iPhone was a necessity when the cell phone launched. However, since that time, Google has become a major player in the mobile space with its Android operating system. In fact, at this point, there are more Android based phones than Apple phones on the market.
Advertising
On some level, that’s not a problem for Apple Inc. (NASDAQ:AAPL) because it has, historically, made money selling devices. As the device market has matured, however, it has been looking to step into services. Its recently-announced iTunes Radio is an excellent example. The service will help support sales of songs in the iTunes store, but, more importantly, will allow Apple Inc. (NASDAQ:AAPL) to enter the mobile ad space with a popular service.
Online advertising is pretty much owned by Google and its AdWords service. Mobile advertising dominance, on the other hand, is currently up for grabs. In fact, Google highlights this as one of its biggest risks, since the added competition makes selling mobile ads less profitable for the company. That’s one of the factors that helped shrink Google’s margins over the last two years by a whopping ten percentage points.
Priced for perfection, investors should probably lock in gains at Google. When top line sales can no longer cover up for margin compression, investors are likely to jump ship pretty quickly.
A Foot in the Door
Microsoft Corporation (NASDAQ:MSFT) is getting an important foot in the door at Apple Inc. (NASDAQ:AAPL). Although there have been rumors of Apple switching to Bing since the beginning of the decade, this is the first change. It gives the Windows giant a chance to pick up additional traffic and prove to a desirable customer base that Bing is just as good as Google.
If the Siri effort goes well, Apple Inc. (NASDAQ:AAPL) could make Bing the default in its iPhone browser, too. That would be a huge win for Microsoft Corporation (NASDAQ:MSFT) and materially aid its efforts to restart its mobile business. So far, it has launched a new Windows Mobile OS using Nokia Corporation (ADR) (NYSE:NOK)‘s Lumia as a showcase and brought out its own tablet computer, the Surface. Moreover, its new Windows 8 PC OS tries to unify the PC experience with the mobile one.
Getting into Apple’s devices in any way can only help. Microsoft’s top line switched quickly back to growth mode after dipping in 2009. Although earnings fell last year, the company still earned $2.00 a share. Investors seem to like the company’s mobile efforts, pushing the stock up recently, but it remains in a decade-long trading range. So, there’s probably still time to get aboard this recovering industry giant.
Dinging a Competitor
What Apple Inc. (NASDAQ:AAPL) gets is the ability to hurt an increasingly aggressive competitor. Although only a nick, the wound could start to fester if the Bing switch works out well. That’s not a given. Apple tried to switch from Google’s Maps application to its own last year. Only Apple’s maps application wasn’t ready for prime time and resulted in more bad press than anything else.
Taking a slow approach with a switch to Bing, then, is probably a good idea. That said, Microsoft Corporation (NASDAQ:MSFT)’s Bing is also proven technology, so the risks are lower on that end, too. At this point, this looks like a strategic win for Apple and Microsoft.
Another Step
This isn’t a game changing shift, but it is another step in the transformation that Apple is undergoing. The stock is well off its highs, but is still wildly profitable. In fact, despite concerns of slowing sales, the top and bottom lines still advanced year over year in the first quarter, continuing a long trend.
Basically, the company has plenty of time to prove to investors that it isn’t turning into an also ran. A yield of around 2.8% and large buyback plans add to the allure. Growth and income investors should take a look, as should those seeking a turnaround opportunity.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article This Tech Giant Is Switching Teams originally appeared on Fool.com and is written by Reuben Brewer.
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