One of the great ironies of business is that success can breed failure.
A company that invents and commercializes a market dominating new service can squelch innovation. The company’s leaders might think: “Why should we sacrifice our golden egg laying goose to push a new product that might not pay off?”
Such inaction opens the door for more innovative, faster-moving rivals to surpass the successful incumbents.
Consider Google — which has dominated the search engine market for nearly two decades. Suddenly $23 billion worth of its search contracts could potentially go to Microsoft’s Bing, according to the New York Times. Google’s complacency arguably put it in the uncomfortable underdog position.
If the fear of losing such a sizable chunk of revenue spurs Google to build a better search capability, Microsoft may have to try some other way to win a bigger share of the search market.
Bing Could Win Big Google Contracts
Google — which generated $280 billion in 2022 revenue — could lose considerable revenue to Bing. Currently, Google gets an estimated $3 billion from a search contract with Samsung and another $20 billion from a deal with Apple — both of which are up for renewal this year, the Times reported.
For decades Google has dominated internet searches. According to Reuters, the market exceeds $120 billion and Google has long controlled more than 80% of it. Meanwhile, Bing’s share of the market has been less than a tenth of Google’s, according to Gil Luria, an analyst at D.A. Davidson.
Indeed, in March 2023, SimilarWeb estimated that Google’s 91% of the search market dwarfed Bing’s 3%. You can almost see why Google has became complacent.
However, since February, global internet users have been moving to Bing with great speed. Page visits on Bing spiked 15.8% between February 7 — when Microsoft unveiled its artificial intelligence-powered version — while Google visits fell almost 1%, Reuters reported.
In March, Luria said he expects Bing’s search market share to increase in the coming months, especially if Google keeps delaying “the integration of generative AI into its product.”
Now Bing is vying for the $3 billion contract with Samsung. As Bloomberg reported, Samsung shipped 261 million smartphones in 2022 all which are running Google’s Android software.
Samsung is more open when it comes to apps and services. It preloads its smartphones with Microsoft and Google apps and services such as OneDrive and Google Maps. Moreover, Samsung is still negotiating and “may yet decide to keep Google as its default provider,” noted Bloomberg.
Google’s $20 billion contract with Apple is also up for negotiation this year. However, Google has been paying huge amounts of money to Apple to keep that relationship in place.
I am guessing that Google will keep paying what it takes to keep that contract. In August 2021, Bernstein analyst Toni Sacconaghi estimated Google would pay Apple $15 billion in 2021 and between $18 billion and $20 billion in 2022, according to 9To5Mac.
How Google Became Complacent
Just as Eastman Kodak
KODK
invented the digital camera (in 1975) that contributed to its 2012 bankruptcy, Google was an early innovator in generative AI but has been very slow to roll it out to end users — everyday people who consumer the product.
To be clear, I do not think Google will go bankrupt. I do think its market dominance in search has put it at a competitive disadvantage in commercializing its generative AI expertise.
Microsoft’s advantage is that it invested in a startup, OpenAI, that has been relatively fearless in getting ChatGPT into the hands of users. People are providing valuable feedback even as they eagerly download the chatbot for fear of missing out on the new new thing.
A decade ago, Google was the undisputed leader in AI. By acquiring cutting-edge AI lab DeepMind in 2014 and “open-sourcing its machine learning software TensorFlow” in 2015, Google assembled the foundation for its leadership, reported the Washington Post.
In 2017, Google released transformers — software architecture that made generative AI possible. Google kept releasing technology that “propelled the entire field forward,” the Post reported.
Yet Google has hesitated to introduce its technology to the general public for fear of a backlash against potentially offensive AI misfires.
That fear of reputational damage has given the advantage to OpenAI whose consumers may be more willing to forgive any of ChatGPT’s missteps. A Google AI employee said, “People feel like OpenAI is newer, fresher, more exciting and has fewer sins to pay for than these incumbent companies, and they can get away with this for now,” noted the Washington Post.
Google remains determined not to release its AI to the general public until it is “helpful and safe,” according to Google spokesperson Lily Lin. However, as Google dawdles, its talent has fled for startups such as “Character.AI, Cohere, Adept, Inflection.AI and Inworld AI,” reported the Washington Post.
Technologist Can Duruk attributed Google’s failure to commercialize its generative AI knowhow to its “monopoly position — causing Google to [let] their once-incredible search experience degenerate into a spam-ridden, SEO-fueled hellscape,” according to his Margins newsletter.
How Google Plans To Fight Back
Google is fighting back. According to the New York Times, “It is racing to build an all-new search engine powered by [its AI technology] and is upgrading its existing search engine with AI features.”
The Times reviewed internal Google documents about a Project Magi. The project hosts designers, engineers and executives who are working in so-called sprint rooms to test and improve the new search engine, which will aim to anticipate each user’s needs.
Staffed with more than 160 people, Project Magi would include ads in its search results. Its additions to search could include queries that result in “buying shoes or booking a flight” as well as asking questions about how to write software.
Google is testing Magi on its own employees and expects to release the tools to a million people outside the company in May and add more features by the fall. By the end of 2023, the new features will be available to 30 million people in the U.S., the Times noted.
Google is far from releasing its all-new search engine. There is “no clear timetable” for when it will release the system that would learn what users want to know based on their current searches; and would list preselected options for items to purchase and information to research, noted the New York Times.
Will Bing Replace Google?
With Google stock down 3.5% in early April 17 trading, investors are clearly concerned about whether the tech giant will suffer a precipitous drop in market share to Bing. I think this is an overreaction.
Google still enjoys a much larger market share than Bing. More importantly, Google is harnessing the excitement about ChatGPT to galvanize its people to counter-attack Microsoft.
Meanwhile, Microsoft could enjoy as much as $40 billion in new revenue from ChatGPT. However, when I learned how Microsoft plans to incorporate its Copilot technology into Word, PowerPoint, and Excel, I was skeptical of whether I would use any of the features.
Meanwhile, it is too early to tell whether users will embrace or ignore Google’s AI-enhanced services.
One thing I know for sure, Artificial Intelligence has a long history of being overhyped. Years ago I worked in a startup building expert systems to help people with personal financial planning. The company’s people were talented and hard-but it failed to build a product that end users needed to buy.
If a ChatGPT-enhanced Microsoft can deliver more value for consumers than Google does with its generative AI technology, then Microsoft is finally in a position to gain a larger share of the search market.
A year from now, the developing picture will become clearer.
Read the full article here
