[UPDATE] According to BusinessWeek, iPhone users may soon see Microsoft's Bing replacing Google as the iPhone's default search engine.

The move comes as the rivalry between Apple and Google heats up due to Google's entrance into several of the company's main markets, including the smartphone arena.

In the past, Google's CEO Eric Schmidt had a seat on Apple's board and the companies had worked together.

A person familiar with the matter who asked not to be named was quoted in the BusinessWeek article as saying, “Apple and Google know the other is their primary enemy. Microsoft is now a pawn in that battle.

Spokespeople from Apple and Microsoft declined to comment, but the same source said that Apple is working on ways to manage and place ads on its mobile devices in a move to eat into Google's ad-serving business.

Talks are still in the works, but if an agreement is reached, iPhone users would automatically get Microsoft's Bing as the main search engine, which could require Google aficionados to change phone settings.

Bing would also benefit, as signing the iPhone deal would help them gain market share in the growing area of mobile search. According to the Nielsen Co., in November 86% of mobile search users turned to Google, while a paltry 11% used Bing.

Google has reaped profits from being the default search engine on the iPhone as they collect revenue from ads placed alongside search results, with portions going to Apple. While details are unknown, Microsoft might have to share a higher portion of revenues or pay a larger annual fee than Google in order to seal the deal.

Another source said that if Apple signs Bing it will only serve the purpose of buying time as Apple develops its own search offering, though the company has not hinted at the idea.

[UPDATE] A story on Mac News Network said that a source maintains that Apple is not interested in building its own search engine due to the expertise needed.