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A recent news report shows that Apple (NASDAQ:AAPL) has been talking with Microsoft (OTCQB:MFST) about using their Bing search as the new default engine for the iPhone as opposed to Google’s (NASDAQ:GOOG). This development draws attention to the fact that Google has become a competitor with Apple by releasing its Nexus One smartphone.

Google’s Nexus One phone that was released earlier this month is similar in design and function to Apple’s iPhone. By going to Microsoft to negotiate a search deal for the iPhone, Apple is indicating that it may have reservations about doing business with Google, a company that is now a competitor in the highly lucrative smartphone market. By setting Bing as the default search engine on the iPhone, Apple would be increasing revenue-generating search traffic to Microsoft as opposed to Google.

What this means is that ETF investors looking to benefit from growth at Google or Apple may need to choose separate funds if competition between the companies deepens. For instance, although unfounded as of yet, there is some speculation that Google may release a tablet computer at some point using its Chrome operating system as a rival to Apple’s iSlate tablet that is expected to be unveiled next week.

If encroachment by Google on Apple’s territory heats up, a fund such as Dow Jones U.S. Technology Sector Index Fund (NYSEARCA:IYW) could be held back. This is because AAPL accounts for 9.4% of the fund while GOOG accounts for 7.0%. Since this is fairly equal in amount, a gain in product expansion for GOOG at the expense of AAPL or vice versa would result in almost no gain or loss for the fund.

This means that IYW is a good tech fund to hedge against competition between GOOG and AAPL although it means it is not ideal for those looking to gain from one company or the other’s success.

In that case, investors wishing to bet on successful competition against AAPL by GOOG should choose First Trust Dow Jones Internet Index (NYSEARCA:FDN). GOOG accounts for 9.5% of the fund while AAPL is not a holding.

In the other direction, investors that think GOOG will be forced to backtrack on product expansion that competes with AAPL because of the success of AAPL products should choose PowerShares QQQ (QQQQ). This fund allocates 15.5% of its holdings to AAPL and only 5.0% to GOOG.

At the moment, this is only speculative since Google’s present competition with Apple is limited to only smartphones. However, these may be the sort of decisions that ETF investors interested in the technology sector may have to grapple with in the future if competition between the two companies moves further.

Disclosure: Long FDN

Source: Is Apple Wary of Google?