A few months back, some on Wall Street were worried that Microsoft Corp.’s artificial-intelligence advancements would help the company eat into Alphabet Inc.’s dominant Google search business.
Those concerns may be soon fading, as “the investment community has rightfully determined that Google is in good shape around AI,” Barclays analyst Ross Sandler wrote in a note to clients Wednesday. But the search giant still faces other challenges as generative AI, the type of artificial intelligence popularized by ChatGPT, becomes more prominent.
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The “new elephant in the room,” in Sandler’s view, is whether Alphabet’s
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own efforts with AI end up hurting its big moneymaker, at least in the short term. The concern is that as Google integrates generative AI into its search business, people might start to get more information that way, rather than clicking through to revenue-generating sources like sponsored listings.
“It’s fairly well documented that the top position on legacy SERPs [search engine results pages] gets the lion’s share of the clicks, anywhere from 2% to 39% depending on whether the first link is an ad or an organic result,” Sandler wrote.
“So the obvious problem” for Google is that mobile and desktop search engines powered by generative AI “are a complete departure” from the typical look of search, he continued. “Not only is the percentage of screen real estate dedicated to ads much lower, the entire layout and flow of the SERP appears to be changing in many cases.”
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He gave an example of a mobile search for house plants that’s dominated by ads in its traditional form but devoid of any ads above the fold in the demo generative-AI search layout.
“The point being that any movement of commercial query share toward less commercial share using GenAI, would have air-pocket impacts,” Sandler wrote. “This speaks to just how good a business model traditional search really is — in many cases, the ads are just as relevant if not more relevant than the organic results.”
On the bright side, Google has a history of finding new ways to monetize search, and Sandler thinks it’s possible that more relevant AI-driven answers could ultimately help click-through rates for top positions on the page.
“An auction with a winner of one could actually monetize at or above the traditional 10-blue-link SERP,” he wrote. “But this is going to be a big unknown for the foreseeable future.”
