Is OpenAI's Chatbot a Threat to Google's Core Business?
Table of Contents
- Introduction
- The Dominance of Google Search
- The Rise of AI and Large Language Models
- The Threat of Chatbots to Google Search
- Google's Response to the Threat
- The Innovator's Dilemma
- Monetizing Search Results from Chatbots
- The Blurring of Paid and Non-Paid Search Results
- Google's Diversified Business
- Observing the Situation
- Conclusion
Is OpenAI's Chatbot a Threat to Google's Core Business?
Over the last few days, OpenAI's new chatbot, GPT, has been making headlines. It's hard to overestimate how much artificial intelligence is going to change our lives and the economy. So, the question arises: does the recent development of OpenAI represent a threat to Alphabet's (Google's parent company) Core business, Google Search?
According to my chatbot, OpenAI is not a threat to search engines. However, I don't agree with the chatbot's response. I think chatbots have the potential to make Google Search obsolete. So, is OpenAI's chatbot really going to kill Google's core business, or does Google have some advantages that may help the business fend off some new competitors? This will be the topic of today's article.
The Dominance of Google Search
Search is an area that is dominated by Google Search, which runs around 99,000 search queries per Second, adding up to a whopping 8.5 billion searches per day. This represents a market share of around 92%. Over the last nine months of Google's 2022 fiscal year, the business generated $120 billion in revenue just from search.
The Rise of AI and Large Language Models
However, this business is possibly about to be disrupted by a new technology, namely AI and large language models that can Read, summarize, and translate text, and predict future words in a sentence, letting them generate sentences similar to how humans talk and write.
The Threat of Chatbots to Google Search
Chatbots like OpenAI's GPT might actually represent a very real threat to Google's business. For instance, when You ask the chatbot to Create a detailed one-week travel plan to Paris for someone who loves French food and wants to stay in a four-star hotel, you get a response that is pretty impressive. There is no need to Google for restaurants or hotel suggestions, and the central pillars of your trip are basically planned, all within 5 seconds.
Similarly, when asked to recommend a particular cinema in Paris and tell how to get there from the hotel using public transportation systems, the results make Google almost obsolete. There is no need to filter through lots of different links that may be provided by Google, and you get a very concise recommendation by the OpenAI chatbot instead.
Although the chatbot's results are not always perfect, and sometimes false information is presented with a high degree of confidence by the bot itself, which also bears its risks, improvements over time are inevitable. Personally, I find the chatbot so useful that I already asked my iPhone to create an app for it that is now located on my phone's home screen. I found myself using chat GPT instead of Google multiple times a day already.
Google's Response to the Threat
To understand why the OpenAI chatbot is a threat to Google's core business, you have to understand how Google makes money on Google Search. Simply put, Google makes money primarily through advertising, and more specifically, performance-Based advertising. This means when people use Google to search for something online, the search engine might display ads that are related to the search term. Businesses can actually target specific locations, languages, and audiences, and they pay Google to display the ads, mostly on a pay-per-click basis, meaning businesses only pay Google when someone actually clicks on their ad.
The problem with a chatbot like GPT is that there are no longer links. The quality of the answers of the chatbot is on average of higher quality and more time-efficient than when you Google something and then have to fight your way through the various links that are provided by Google. This creates a problem because, of course, you could argue that Google could just copy what chat GPT does and integrate it into their own services. However, if there are no links, there is no monetization. One can figure out some form of monetization for search results like the ones provided by a chatbot, but the monetization possibilities may be less attractive.
The Innovator's Dilemma
This puts Google in a difficult position and a dilemma. Sure, Google is already spending billions on AI, and its AI business division, DeepMind, has actually come up with numerous programs that outperform humans in games like Go, Starcraft, or Stratego, for example. They even solved a 50-year-old protein-folding challenge. Moreover, they are also into autonomous driving. In their latest annual report, they actually outlined that they are exploring options to make use of AI in search too. "We Are currently experimenting with multitask unified model capabilities to make searching more natural and intuitive and even enable entirely new ways to search."
However, if there are no links, copying the functions of chat GPT may not be that hard, although OpenAI probably has a major head start in this area. But even if they could copy it, monetizing the search results is harder than the traditional Google search business. Then, Google would basically cannibalize its own search business, which as of now represents the majority of their profits. Businesses are often reluctant to innovate if this will kill their traditional legacy business, and this is actually expressed in the so-called innovator's dilemma, a concept developed by Harvard Business School Professor Clayton Christensen. It refers to the situation where a successful company is facing new market or technological challenges that resist change and continues to rely on its established strategies and products, even as they become less effective because this old strategy is generating the majority of profits.
Monetizing Search Results from Chatbots
The pull case, on the other HAND, might be that search results from a chatbot may actually be monetized at an even better rate because the chatbot could offer you just the best-paid option when looking for a hotel in Paris, for instance. For the user, it may be very hard to tell that there is an ad in the first place. So, in a way, it could blur the distinction between paid and non-paid search results, and this may actually be a net positive with Google in its Current form. For example, personally, I almost Never click on the first couple of results, which are paid ads. A chatbot might actually be a positive when that distinction between paid and non-paid search results becomes more blurry.
Google's Diversified Business
Google is a reasonably diversified business, even though search represents the majority of Google's revenue. They also possess other valuable businesses like Google Cloud, YouTube, or Android, to name just a couple of examples.
Observing the Situation
I will observe the situation very carefully. I will observe whether people form a new habit here. Will they start chatbotting something instead of quickly Googling something?
Conclusion
In conclusion, OpenAI's chatbot, GPT, might represent a threat to Google's core business, Google Search. However, Google has some advantages that may help the business fend off some new competitors. The situation is complex, and it remains to be seen how it will play out.
