Google – The back foot

Google is on the defensive.

• E-marketer expects that Google’s market share in US search advertising will drop below 50% in 2025 mainly as others properly monetise their traffic, but this will fuel the debate over the impact of generative AI on an industry that Google has ruled for over 20 years.
• In 2018, Google’s market share stood at just over 60% but this has been slowly whittled away as other large ecosystems have come into the market.
• The main culprit is Amazon, which had a 10% share in 2018 and is expected to reach around 25% in 2025.
• This is not because Google has done anything wrong but because Amazon has not been properly monetising the traffic that comes to its site and is only just beginning to do so.
• Amazon is so universal in non-Chinese e-commerce that has for years been a destination to search and compare products, but it was not until recently, that Amazon began to monetise this traffic properly.
• Hence, this 6-year downtrend in share has been mostly caused by Amazon making money for the first time on traffic that it already had rather than taking traffic and share away from Google.
• However, this does not mean that Google does not face a substantial challenge as the advent of generative AI raises the possibility that the business model of a list of blue links following a search request may be radically altered.
• ChatGPT and its increasing list of competitors have been around for 2 years now and so far, they have failed to make a dent in either Google’s traffic or its advertising revenues but these sorts of things often take time.
• For example, Apple rendered Nokia obsolete in 2007, but it took another 7 years for Nokia to give up the fight and sell out to Microsoft.
• Search via generative AI is different in that it returns an answer amalgamated from a series of sources but that does not mean that it can’t be monetised in a similar way.
• What it does do is offer a point of dislocation giving Google’s competitors the first real opportunity to cut it down to size for over 20 years.
• Of all of the search alternatives I have tested, by far the best is Perplexity AI which conducts a search and then uses generative AI to put together an answer from what it finds.
• What has surprised me about Perplexity is its ability to handle the long tail of really obscure requests and to do so accurately a lot of the time.
• It is not nearly as current as Google as it appears to be unaware of events that happened a few days ago, but it could end up offering significant challenge to Google if Google doesn’t buy the company first.
• Perplexity is going to start adding advertisements to its free product and in a relatively short period of time, it will begin competing for the same ad spend that Google does.
• Google, Amazon, Meta and Apple have a great advantage in that they have hundreds of millions or billions of users of their digital life services meaning that they can distribute their AI via their apps directly to existing users who are likely to use them.
• Newcomers like Anthropic, Perplexity, Mistral and so on have to fight for every new user which makes life much harder for them.
• The virality of ChatGPT gives OpenAI a huge leg-up in this area because its product is now a household name making sales and marketing of its products much easier.
• It is unclear at this stage whether generative AI is going to disrupt search but there is little doubt that this is the first potential major disruption to Google’s plain sailing that we have seen in many years.
• Given the uncertainty, the recent rally and Google’s new-found ability to shoot itself in the foot I remain not very inclined to want to own the shares.