ChatGPT vs Bard: Google's Strategy to Dominate Conversational Search

In February, Google experienced a significant setback as its shares plummeted by $100 billion in a single day. The launch of its AI chatbot Bard turned out to be quite disastrous, with a notable error in one of its answers, leading many to believe that Google had lost its way.

Interestingly, if you type "Will Google lose..." in the search bar today, the first autocomplete prompt is "Will Google lose... to ChatGPT?" This prompted speculation that Microsoft, which had invested in ChatGPT through its parent company OpenAI and integrated it into its search engine Bing, would overshadow Google.

However, the tables turned last week. During Google's annual conference, the executives mentioned AI over 140 times, demonstrating their commitment to incorporating it into every product they own. This move resonated well with the audience, resulting in an 8% surge in Google's stock.

So, how did Google manage to turn its AI fortunes around so quickly? Let's explore a couple of factors. But first, let's understand why Google was initially late to embrace AI.

One reason is that Google was cautious about jeopardizing its search ad revenue—the goose that laid the golden egg. Traditionally, when users performed a search, they would receive a list of blue links, and advertisers bid for keywords to appear at the top. Given our limited attention spans, most users clicked on links from the first page, generating substantial revenue for Google. In fact, search ad revenue accounted for over 60% of Google's total revenue, surpassing the significance of the iPhone to Apple, which contributes around 50% of the company's revenue.

"Alphabet Inc., GOOG 0.87%increase; green up pointing triangle Google's parent company, posted $54.5 billion in ad revenue for the first quarter, a decrease of less than 1% from the same period last year but a smaller decline than Wall Street anticipated" -Wall Street Journal

Imagine a scenario where users no longer need to click on blue links but receive direct and comprehensive answers to their queries. While this may seem impressive, it would spell doom for Google's ad revenue since users wouldn't generate clicks, making it impossible to charge advertisers.

Google's "I'm Feeling Lucky" button is a prime example. When searching for something like "insurance," Google would instantly direct users to the most appropriate result, bypassing ads and clicks. Even though only 1% of searches used this feature, it cost Google over $100 million in annual ad revenue.

Considering the potential impact on their ad revenue, Google hesitated to fully embrace AI, despite having a dominant AI team and publishing a paper discussing conversational search engines back in 2021. However, Microsoft's significant investment in Bing 2.0 served as a wake-up call for Google. It prompted them to establish an internal group called 'Magi' to bring AI to their search engine.

Yet, perhaps Google's panic wasn't entirely necessary. Bing hasn't shown great progress, with its search market share on desktops growing by a mere 0.25% in the past three months. Instead, it appears that users prefer obtaining answers directly from ChatGPT. So, if Bing isn't the real threat, can Google itself outshine ChatGPT?

Let's consider the example of searching for the "best broom to clean house" right now. Currently, Google's search engine displays links and images, while its chatbot Bard provides conversational answers, similar to ChatGPT. Traditional search and Bard exist as separate entities. However, Google is now looking to combine them to make search more conversational. This means users might not need to turn to ChatGPT for discussions about broom; they can have them directly on Google search.

But what about the existential threat to Google's ad search revenue?

Google isn't completely reimagining search just yet, as it heavily relies on ad revenue. To play it safe, Google will likely present a conversational answer at the top, giving users the feeling of interacting with a helpful stranger. However, they will still display links and advertising that users.

But will it be really successful? What do you think?

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