Microsoft is considering investing billions in an Apple deal to compete with Google Search

(Bloomberg) — Microsoft Corp. considered investing several billion dollars in a deal with Apple Inc. in 2016 to make its Bing search engine the default in Safari and better compete with Alphabet Inc.’s dominant Google Inc. and Microsoft’s CEO. He testified Thursday in court.

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Microsoft CEO Satya Nadella met with Apple CEO Tim Cook as part of the talks, said John Tainter, vice president of business development at Microsoft, who stands at the stand during the US Department of Justice’s antitrust trial in Washington against Alphabet. Microsoft would have made a multi-billion-dollar loss under the terms of the deal, but it would have boosted its search engine, Bing, ultimately allowing it to capture more market share and revenue, Tainter said.

The software giant had a deal for Apple to use Bing in Siri and Spotlight, an Apple feature to help find apps on iPhones from 2013 to 2017, but wanted to expand that to Safari. Instead, Google ended up enhancing its own deal with Apple to include products that previously used Bing.

This type of search engine deal involves Microsoft or Google sharing with Apple the advertising revenue associated with user queries. Because Bing was much smaller than Google, Microsoft would have had to offer Apple a much larger percentage of revenue than Google, and would have lost money on the deal, at least initially, Tainter said.

“In the short term, it would have been very negative. We told the board we were considering making a multi-billion dollar passive investment to support this,” Tainter said.

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He said the terms were negative enough that Microsoft executives discussed with the board how to explain them to shareholders.

In 2018, Microsoft and Apple once again held serious discussions about collaborating on research outside the United States. Tainter said Microsoft has developed a “rules of the game” for the investments it will make to improve its search.

“It was about trying to make them confident that we could make the switch,” he said.

Samsung default

Microsoft also tried to convince Samsung Electronics to use its Bing search engine as the default on its smartphones, Tainter said.

“Even if economists excel at working with Microsoft, they won’t move away from Google,” Tainter said of Samsung.

In a December 15, 2019 email presented to the court, Tainter urged Nadella to stop pressuring then-Samsung chief Dong Jin Koh, known as DJ, to switch the default search.

“I’ve received some very candid feedback from the Samsung team that DJ has clearly heard you want to do something here, but they don’t want to make a big move because of the partnership with Google but DJ is too polite to say no,” Tainter wrote.

For years, he urged Samsung executives to let Microsoft offer default search on its phones, Tainter said, pointing to the example of Apple.

“Even though we weren’t winning, we were helping Apple make more money and costing Google more money,” Tainter said. But Samsung executives said, “John, it’s not even worth it. We don’t want to go down that road.”

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(Adds details about Samsung negotiations starting in seventh paragraph. An earlier version of the story corrected spelling of alphabet.)

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