A couple of months ago, everyone was worried that Microsoft and ChatGPT would kill Google. But Google’s trying to fight back and in today’s Finshots, we explain what’s going on.
The Story
In February, Google shares lost $100 billion in value in a single day. Its AI chatbot Bard had quite a disastrous launch. People spotted a gaffe in its answer. And everyone declared that Google had lost the plot.
In fact, today, if you type “Will Google lose…” in the search bar, the first autocomplete prompt is “Will Google lose…to ChatGPT?”
Now if you were a betting person, you might have placed your chips on Microsoft immediately. The tech giant had invested in ChatGPT (through its parent company OpenAI) and weaved it into its search engine Bing.
But last week, the tables turned. At Google’s 2-hour annual conference, the executives used the phrase AI over 140 times! They’re weaving it into literally every product they own. And people loved it. Google’s stock soared by 8%.
How on earth did Google turn its AI fortunes around so quickly, you ask?
Well, there are a couple of things. But before we get into that, we need to see why Google was late to the party in the first place.
One answer is that Google didn’t want to kill the goose that laid the golden egg — We’re talking about search ads.
Now here’s how search works. If you have a question, just type it into the box and it spits out a whole bunch of blue links. Google allowed advertisers to bid for keywords — say insurance. The ones who paid the most would feature at the top of the list. And since our attention spans are low and we don’t want to scroll through multiple links and pages, we’d normally click on something from Page 1. Since Google was the search engine behemoth,, it made a lot of money this way. In fact, this search ad revenue is over 60% of Google’s topline. Even the iPhone is not that important to Apple. It makes up around 50% of the company’s revenue.
Now imagine a scenario where you wouldn’t have to click on another blue link in your life again to get an answer. Just type your query and you’d get a straight answer that explains everything.
Sounds amazing, right?
But for Google, this will be a doomsday scenario. It would kill their ad revenue. No one would click on anything anymore and the tech giant wouldn’t be able to charge advertisers for clicks.
I mean, you know Google’s “I’m Feeling Lucky” button, right?
For instance, when we searched for ‘Insurance’, it took us straight to an Investopedia article. No ads, no clicks. It was Google’s version of giving you the most appropriate and accurate result. And as far back as 15 years ago, even though only 1% of all searches went through this route, Google was losing over $100 million annually in ad revenue due to this one button.
You can imagine then that an AI-powered search engine would kill the golden goose!
But Google hasn’t really been sleeping at the wheel. So the change of fortune now isn’t really surprising. In the past decade, it built a dominant AI team dabbling in all sorts of stuff. And Google’s engineers even published a paper in 2021 talking about search engines becoming conversational. It’s just that Google likely didn’t act on it because it wanted to protect ad sales.
And it finally took Microsoft’s big splash with Bing 2.0 for Google to panic. That’s when it went on overdrive and set up an internal group called ‘Magi’ to bring AI to search.
But maybe Google needn’t have panicked so much.
Because here’s a stat for you. It seems like Bing hasn’t been able to make any inroads. Apparently, its search market share on desktops has grown by a measly 0.25% in the past 3 months. People simply aren’t switching.
Rather, it seems that people prefer to get their answers straight from the horse’s mouth. They’re going directly to ChatGPT for their answers. So if Bing’s not the real threat, can Google kill ChatGPT itself?
Well, let’s assume you are searching for the ‘best electric toothbrush’ right now.
At the moment, Google’s search engine will throw out links and images. On the other hand, its chatbot Bard will provide you with a conversational answer extolling the virtues of various electric brushes. Much like ChatGPT. And so in many ways, traditional search and Bard exist as two distinct things. But Google’s finally looking at combining the two in some form. Make its search more conversational. And that means, you won’t need to turn to ChatGPT to have a conversation about toothbrushes anymore. You might be able to do it straight on Google search.
But what about the existential threat to Google’s ad search revenue, you ask?
Well, Google isn’t reimagining search completely just yet. It’s quite addicted to the billions in ad search revenue. So it’s playing it safe. From the initial videos, it looks like Google will simply spit out a conversational answer at the top. Make you feel like you’re talking to a helpful stranger. But it’ll still give a bunch of links and advertising that you can click on. So you can buy that ‘recommended’ electric toothbrush straight from Google search.
It wins. You win. And maybe ChatGPT loses.
Also, with AI finding its way into virtually every Google product in the ecosystem, you can be sure that it takes away more use cases of ChatGPT. Such as the mundane task of writing emails. As Casey Newton wrote in his newsletter Platformer:
ChatGPT probably records more copy and paste actions than any other website in the world; Google is abstracting that whole process away into a button.
Ideally, though, you’d never have to visit a dedicated website to use generative AI in the first place. For example, at the moment lots of people are having ChatGPT write their emails and then porting them over into their email client of choice. Google is taking the obvious next step: promising that later this year, you’ll be able to just ask Gmail to write the email for you in the message composer window.
I predict ChatGPT sees fewer copy and paste actions after that.
Basically, by giving people AI features in existing products that they already love using, Google’s finally trying to win the AI battle.
But will it be really successful? What do you think?
Until then…
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