AI: Google Search & rising AI competition. RTZ #501

...new concerns over advertiser shifts with rise of Perplexity, TIkTok, Amazon et al

The Bigger Picture, October 6, 2024

Since the opening shot of OpenAI’s ‘ChatGPT moment’ two years ago next month in this AI Tech Wave,, investors have been worried about the impact of AI applications powering next generation AI Search taking away market share from Google in the advertising Search market. I’m on the record for most of that time believing Google will more than hold its own. That view has not changed. But near-term worries are rising with new startups and rising competition from non-search big tech companies. That is the ‘Bigger Picture’ I’d like to unpack today.

The WSJ provides some context on the new concerns in “Google’s Grip on Search Slips as TikTok and AI Startup Mount Challenge”:

“A flurry of new offerings for advertisers is hitting the market.”

“Google’s grip on the nearly $300 billion search advertising business is loosening.”

“For years, the tech giant has seemed invincible in this corner of the ad market, which is the foundation of its business. Now, rivals are beginning to eat into its lead, and new offerings—fueled by the rise of artificial intelligence and social video—threaten to reshape the landscape.”

“TikTok, the wildly popular short-form video platform, has recently started allowing brands to target ads based on users’ search queries—a direct challenge to Google’s core business. “

“Perplexity, an AI search startup backed by Jeff Bezos, plans to introduce ads later this month under its AI-generated answers. Until now, it has made revenue mostly from a $20-a-month subscription offering that grants access to more-powerful AI technology.”

“The new initiatives add to the pressure on Google from the rise of Amazon.com, which has taken a chunk of search ad spending. Many consumers begin product searches on the e-commerce platform.”

“Google’s share of the U.S. search ad market is expected to drop below 50% next year for the first time in over a decade, according to the research firm eMarketer.”

Note that the chart in the piece points to rising competition from Amazon is the biggest competitive trend:

“Amazon is expected to have 22.3% of the market this year, with 17.6% growth, compared with Google’s 50.5% share and its 7.6% growth.”

“Google remains in an enviable position: far ahead of the pack in the search market, with plenty of resources to counter moves by its rivals. Still, advertisers are eager for more competition.”

The bigger question is of course around the longer term impact of LLM and Generative AI on Search.

OpenAI has already entered the Search market as I’ve discussed before. But Google is ramping up for AI Search competitors, as the WSJ notes:

“The generative-AI boom is transforming search products, which will increasingly serve up fully formed answers to user queries or summaries of the results. Google this past week rolled out ads in the AI-generated summaries it has begun placing at the top of search results. The ads will only show up on mobile searches in the U.S. at first, Google said.”

“In one example of how the new search ads might appear, Google showed a listing for a Tide pen that is available on the Albertsons website in an AI overview responding to the query, “How do I get a grass stain out of jeans?”

“We’re confident in this approach to monetizing our AI-powered experiences,” said Brendon Kraham, a Google vice president overseeing the search ads business.”

“We’ve been here before navigating these kinds of changes.”

AI Native startups like Perplexity AI are of course offering creative new AI-generated products for end users, and solutions for advertisers. But the scale gap remains vast vs Google:
”Some 46% of Perplexity queries in the U.S. lead to follow-up questions, according to the presentation. The company said it processed 340 million queries in September. By comparison, Google has said that it handles some two trillion searches a year. Shevelenko said Perplexity won’t ever change the search engine’s nonsponsored answers based on demands from advertisers.”

TikTok, though big in the US with over a billion users, remains relatively small on the ad share front:

“Advertisers remain drawn to TikTok because of the platform’s strong appeal to younger adults—interest that hasn’t diminished despite the U.S. government’s efforts to force the app to sever ties with its Chinese owner or face a potential ban. While TikTok’s U.S. ad revenue is expected to jump 38.1% this year, it only has a 3.4% share of the U.S. digital ad market, according to eMarketer.”

Also important is the emerging role of AI Voice driven applications that can also drive new behaviors around Search. But this is also an area that Google’s Gemini AI is focused on providing solutions at Scale as I’ve noted.

All of these trends bear watching. But Google again has many advantages in the works at this early stage of the AI Tech Wave. That is the ‘Bigger Picture’ I’d like to leave us with on the AI and Search landscape. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)