Can $100m a year keep Google on the iPhone?

A new report says that Apple has over one hundred million reasons not to dump Google from the iPhone and replace it with either Microsoft Bing or its own made-in-Cupertino search service.

According to a source "familiar with Apple's operations" speaking with Silicon Valley Insider, the rumor that Apple will launch its own search engine "isn't credible."

One of the reasons the source gave was that Mountain View ships more the $100m to Cupertino each year for the privilege of being the iPhone's default search engine. (Yahoo! search is also supported, but you have to dig into Safari's search-engine settings to make the change).

Rumors of Apple creating its own Google competitor first surfaced in late 2008 and were followed by another flurry last August.

The latest round of rumors began with a report that Apple was in talks with Microsoft about giving Bing that high-value default ranking. At that time, a "person familiar with Apple's thinking" told BusinessWeek that any deal with Microsoft would be "about buying itself time" because Cupertino had its own "skunk works" investigating the development of a search service.

After all, Apple is busily building a billion-dollar data center in North Carolina that could support a search service - although that massive server farm could instead be intended to service Apple's media-download ambitions for its soon-to-ship iPad.

So what we have now is a rumor collision: one source "familiar with Apple's operations" saying that Cupertino will maintain its $100m-plus Google deal, and one "familiar with Apple's thinking" saying that Apple is looking into building its own search competitor.

Apple and Google being nothing if not secretive, we can't know which rumor is true. But we can examine the facts.

The two companies were once close-enough buddies that they were said to have had an unwritten pact not to poach each other's employees. That comity has ended - so much so that Steve Jobs was recently reported to have called Google's "don't be evil" mantra "bullshit."

The reason for Jobs' ire? "We did not enter the search business," Jobs said in reference to Google. "They entered the phone business. Make no mistake: they want to kill the iPhone. We won’t let them."

Conspiracy-lovers take note: Jobs didn't say "We will not enter the search business," he said "did not." Verb tenses matter when trying to divine the intentions of execs who play their cards very, very close to their chests.

Even before Google chief Eric Schmidt left Apple's board last August - prompted in no small part by a Federal Trade Commission antitrust investigation - both companies had begun maneuvering into and around each other's territories.

Google's fledgling Chrome OS is a direct competitor to Apple. If not to Mac OS X, then to that operating system's scaled-down iPhone OS - a fact made more clear by the introduction of the iPhone OS-based iPad.

And, of course, Google's Nexus One smartphone and its Android operating system, increasingly growing in popularity on a series of third-party smartphones, are aimed squarely at Apple's iPhone market share.

Then there was the "he-said, she-said" back-and-forth over Apple's refusal to allow Google Voice and Google Lattitude onto the iPhone. Google says that Apple rejected them; Apple says it's merely "studying" whether Mountain View's phone and location apps are worthy of inclusion.

Apple, for its part, has been making moves of its own to position itself in Google territory - buying mapmaker Placebase, shopping for a software engineer to boost its iPhone Maps app "to the next level," and buying online ad broker Quattro Wireless for $275m.

Apple has also stooped to such petty Google-maligning tactics as barring an iPhone app from the iTunes App Store until the developer removed the offensive word "Android" from its college entrance exam–prep app's description.

Taken together, all of these developments don't add up to stone-cold proof that Apple will dump Google from the iPhone. But if Apple does choose to show the Mountain View search service the door, no measly $100m per year will stop it.

After all, as Steve Jobs proudly crowed at the release of Cupertino's most recent financial statement last month: "Apple is now a $50+ billion company." A two-one-hundredths per cent drop in revenue would hardly be noticed by even the most myopic bean counter. ®