Apple?s discussions with Microsoft to potentially make Bing the default search engine on the iPhone is another sign that the Apple-Google rivalry is heating up, as is mobile search advertising.

Google is currently the primary search engine on the iPhone, which brings it a healthy stream of mobile ad revenue. However, with the Android OS and Android Market ramping up, the Nexus One poised to grab market share from the iPhone and with each company acquiring a different mobile ad network, Apple is making it clear that it now perceives Google, not Microsoft, as its No. 1 rival.

?It's more of a comment on Apple's growing rivalry with Google than anything else," said Noah Elkin, senior analyst at eMarketer, New York. ?An Apple-Bing deal wouldn't radically reshape the mobile search space, although Microsoft certainly stands to gain more than Google stands to lose in terms of market share, exposure, branding and access to search data.

?But given the emphasis that Apple places on providing the best user experience, there is some risk in moving away from a search partner that users consider best-of-breed,? he said.

In addition to increased mobile ad revenue, becoming the default search engine for the iPhone would help Microsoft grab more market share for Bing in the soon-to-explode mobile search space that Google currently dominates.

An Apple-Microsoft deal would have a significant impact both on desktop and mobile search advertising.

?Should Apple shift its browser relationship from Google to Bing, that would be a big win for Microsoft," said Michael Bayle, vice president of monetization and marketing at Amobee, Redwood City, CA. ?If the deal leads to more marquis placements where brands? ads can appear, that?s a big win for mobile.

?Should Microsoft add Apple to their multichannel portfolio of inventory, it would inaugurate a very enviable position on the mobile Web,? he said.

With Safari being the only Web browser on the iPhone, if Apple's default choice is to use Bing, it would be a big win for Microsoft, as it would become a much more desirable search portal for advertisers and marketers.

No more Mr. Nice Guy
Google hopes the Nexus One will be a game-changer that gives its Android operating system a boost in competition against rivals such as Apple?s iPhone (see story).

With the Android Market reaching more than 16,000 applications and Google launching the Nexus One, expect a full-blown handset battle in 2010 with Apple and Google on the frontlines duking it out (see story).

?An Apple-Microsoft deal would be another shot over Google?s bow,? Mr. Bayle said. ?Apple has historically been a strong partner with Google, but should these rumours come true, it would be further evidence of a very large fraction developing between Google and Apple, to the point where they may no longer be partners.

?It could even continue beyond search?the next version of the iPhone OS could remove YouTube or Google Maps in favor of Microsoft programs,? he said.

Back in September, Google?s mobile search site, with its minimalist interface, format-specific device detection and location-awareness capabilities, was ranked No. 1 for mobile search in a Yankee Group study (see story).

However, given that Microsoft and Yahoo are already collaborating in some areas, if Microsoft inks a deal with Apple as well, Bing could provide serious competition for Google.

?Apple wants to remain the brand of choice for consumers, and the partnership with Google was harmonious for quite some time, but the minute Google entered the mobile industry itself with Android, it was a sign that it wanted to own the consumer experience at the expense of Apple, leading Apple to form more ties to Microsoft,? Mr. Bayle said.

?Mobile search is very key for Microsoft, and with an Apple deal they?ll get a big footprint overnight to attract consumers to use their platform,? he said. ?How will this impact advertisers? To be determined.?

The Mobile Decade
Like Google?s acquisition of AdMob and Apple?s acquisition of Quattro Wireless, an Apple deal with Microsoft for Bing would be yet another sign that the prospects for mobile advertising are bright in 2010 and beyond.

?The era of mobile advertising has started?2010  is going to be a banner year,? said Dev Gandhi, CEO of  Nexage, Boston. ?These announcements over the last few weeks are proof that people finally understand that the mobile business is going to be way larger than the online PC business in a few years.

?Google has said that mobile search revenue will be equal to PC search revenue in five years, and when they spoke with their dollars in acquiring AdMob, everyone was listening,? he said. ?It was another validation of mobile advertising as an industry showing how important it?s going to be.?

No online ad business has been acquired at the valuation of the last two acquisitions in the mobile advertising space, which shows how quickly consumers? usage behavior has changed, shifting increasingly from PCs to mobile.

Mr. Gandhi said that an Apple-Microsoft alliance would clearly mark how the competitive dynamics have shifted.

?At one time the biggest rival for Apple was Microsoft, but it has changed and it?s now Google, which is moving in to Apple?s territory with phone hardware and an operating system and an app store,? Mr. Gandhi said. ?It?s a competitive issue?Google is who they feel their biggest competitor is.

?Getting on the iPhone would be great for Microsoft to gain market share and pose a challenge to beat Google on search,? he said. ?Everyone believes smartphones will be big in terms of mobile usage, both search and browsing, so it would be a big win for Microsoft.?