After its brand-new AI chatbot, Bard, mishandled a response to a question on an advertisement promoting its launch, Alphabet, the parent company of Google, suffered a huge loss of US$100 billion (£83 billion), or roughly ten percent of its market value. The European Southern Observatory’s Very Large Telescope, not the James Webb space telescope, actually took the first images of planets outside of our solar system.
When Microsoft revealed that it would be integrating ChatGPT into Bing, Office, and Teams, its shares increased by 3% at the same time. Microsoft has a sizable stake in OpenAI, the company behind the acclaimed AI chatbot.
Many people wonder if we are seeing Google’s equivalent of Kodak’s legendary fall to digital photography, and they are referring to the American camera giant. Although we believe there is some justification for investors’ worries about Google’s future as a search engine company, that may be overstating the case.
How disturbance occurs
A mistake by Bard is not an issue in and of itself. ChatGPT has a reputation for confidently providing incorrect answers to questions. The launch fiasco was the straw that broke the proverbial camel’s back, which contributed to the strong market reaction against Alphabet. The argument held that Google cannot effectively defend its search business if it cannot even create a compelling launch advertisement for its new technology.
According to our observations, businesses are rarely disrupted because they lack the necessary resources or technology. More often than not, it’s either because they lack creativity or find it difficult to reinvent themselves, frequently out of concern that starting a new firm will hurt an already existing one (known as cannibalisation).
Most of the time, the issue with long-standing incumbents is a lack of creativity. For instance, Kodak paid a high price since it couldn’t envisage a world without photographic film and tangible printouts. Similarly, Airbnb utterly caught hotel chains off guard. They received no response other than a massive lobbying effort by government officials against the service.
The technology that supports AIs like ChatGPT, on the other hand, has been pioneered by Google. Large language models, or LLMs, basically work by collecting a number of extremely powerful computers and “training” them using vast amounts of data from the internet and other sources.
The ground-breaking work in this field, “Attention is all you need,” was written in 2017 by Google research scientists. Google successfully introduced LLMs into applications like Google Translate, but never into the core search operation. It appears that it is afraid of cannibalization and the challenges of redesigning the search industry. Unfortunately, it appears that the status quo is also unsustainable.
With 84% of all traffic worldwide and 70% of its revenue coming from this and related markets, Google completely dominates the search business. Because it established a company of this size, it essentially enjoys a monopoly (outside certain countries like China that do things their own way).
The issue is that artificial intelligence (AI) chatbots like ChatGPT eliminate the need for a search engine by providing precise, accurate, and, in most cases, original responses to challenging human inquiries. Since November, ChatGPT has gained more than 100 million users, making it the consumer app with the quickest adoption rate ever. In addition to Bard, several other businesses, such as the dominant Chinese search engine Baidu, are further along in creating LLMs of their own. Why bother Googling anything anymore if there’s a better way to discover what’s online?
Profiting from AI chatbots
The AI chatbot business model is not yet evident. Because advertisers pay for the consumer traffic they receive from profitable search terms, search is free for end users. It is a dependable, high-margin industry.
On the other hand, AI chatbots can be challenging. Would it be necessary to include advertisements in the responses to persuade people to click on particular advertising websites? Would that seem false and have negative effects? How many advertisements are too many?
The management must be terrified because it’s unclear how much this might cannibalise Google’s search business. Once more, think of Kodak. It may have turned Ofoto, a photo-sharing website, into a social network platform after purchasing it in 2001. Instead, it made an effort to safeguard its business by urging consumers to print more images as opposed to sharing them.
This is how the fundamental competencies of successful businesses turn into their core rigidities. Microsoft doesn’t have this issue because, since the launch of Bing in 2009, it has never been able to properly compete with Google. It only derives approximately 6% of its revenue from search, so it stands to lose much less from industry change. Investors have already been given a preview of how ChatGPT would be incorporated into the Bing ad model.
The current issue
Google has already been losing creativity in recent years. It has closed down a number of promising companies, including the online gaming platform Stadia and the automatic reservations tool Duplex. Playing catch-up to Amazon’s Echo smart speakers with Google Home, it has been late elsewhere.
Inadequate management practises and hasty expectations of a return are also contributing factors. Google’s laser-sharp focus on revenue growth and profitability has been rewarded by the stock market, encouraging the management to be less patient with their investments. Before the global move to the internet ushered in a stunning decline, Kodak’s market price was the highest in its history in 1996. Maybe in 2021 we can say the same thing about Alphabet/Google.
Google/Alphabet stock price
According to our observations, businesses would much rather let rivals slay their prized fowl than do it themselves. Google has to stay away from this pitfalls. The only choice is to begin consuming its search company.
Google might adopt Microsoft’s strategy with Bing and add Bard results as one of the options in answer to user inquiries. As there is no actual bidding for a bot’s response and no clicks that can direct searchers to partner sites where they can be paid for, this could reduce the company’s ad sales. However, if you launch something in beta and restrict access to people who pre-register, you can at least limit the damage. Learn from the experience, try out other monetisation techniques, and only scale when you find the most effective one.
Above all, Google cannot survive or even continue to thrive by adopting an incumbent mindset. It requires a self-invention. This entails not attempting to bring everything it possesses into the future, but rather leaving something on the table. The greater the chance that it will survive, the sooner it realises this.
