Apple may be about to seriously hurt Google's search business

Google's search deal with Apple - which makes Google the default search engine on Apple's mobile devices - is up for renewal this year and analysts at UBS are worrying that this could seriously impact Google's dominance of search.

"Over the past few months, investors have become increasingly concerned about Google's positioning in the worlds of digital advertising and mobile computing," a note to investors from UBS said on March 7.

On its own, it's not a big deal. But the note is just one of a series of beats from analysts questioning whether Google's position in search is really as strong as it looks. There has never been a time when so many doubts about Google have been expressed so publicly, so often.

Google is under threat because of the shift to mobile, and "the rising/sustained strength of companies such as Apple & Facebook," UBS added.

According to an analyst's note from R. W. Baird in January, Google has "lost some of its mojo," and is "down but not out." The company is increasingly referred to as the "New Microsoft." And the New York Times' Farhad Manjoo recently penned a column suggesting that tech companies "meet their end not with a bang but a whimper, a slow imperceptible descent into irrelevancy," and that Google may be "mighty now, but not forever."

Google isn't going to go bankrupt any time soon, obviously. It is a vast company with fingers in many pies. But somehow, things just keep going wrong for it. The Mountain View company recently all but conceded defeat over Google+; the experimental Google Glass has gone back to the drawing board; YouTube faces a significant threat from Facebook's growing video offerings.

The new report from UBS on Google's future is bullish, and argues that some of the fears surrounding Google's prospects are overblown.

The most interesting example involves Apple: Currently, Google Search is included as the default search on the Safari browsers all Apple devices - iPhones, iPads, the lot. The deal to renew this will come up later in 2015, and there is growing speculation that due to competition between Google and Apple in the mobile sphere, Apple will choose not to renew the deal.

Instead, Apple might replace Google Search with one of its competitors like Yahoo, or Microsoft's Bing, which is already used to power Siri. It could even build its own in-house tool, like it did with Apple Maps after ditching Google Maps in 2012. In 2014, Apple also added Duck Duck Go, a privacy-centric search engine, as an alternative choice for search in iOS. The move could be read as a signal to Google: We don't need you. We have options.

This isn't news in itself - a report from The Information's Amir Efrati that Apple might ditch Google came in November 2013. But UBS's new report puts a figure on just how much the move would hurt Google.

UBS estimates that Google will generate $7.8 billion from the iOS deal in 2015 - or 10% of its gross revenues from the year. If that disappears, Apple would deal a significant blow to Google, and provide a massive boost to one of its competitors.

Something similar has happened before. Mozilla recently dropped Google Search as default from its Firefox browser in favour of a new deal with Yahoo. The result? Google's desktop search market share in the US dropped below 75% for the first time in years, while Yahoo saw significant growth.

Here's a chart:

Of course, Google won't lose that complete amount. There will be some "switchback" of iOS customers opting to reset Google as their search engine in Safari, even if it's no longer the default one. UBS estimates that this number could be as high as 50%, based on estimated switchback rates in the months following the Mozilla deal. But there's no guarantee that what happens on desktop will also hold true for mobile. (It's arguably easier to change desktop settings.)

This is just one problem facing Google. There is also the deceleration of desktop search as mobile usage continues to grow, the risks posed by regulatory action taken against the company (especially in Europe), and a shift toward so-called "native" display advertising at the expense of search advertising.

UBS may be "bullish" over Google stock, but there's a lot to be worried about in terms of the company's market share.