This week, at the I/O conference, Google CEO Sundar Pichai and other Google executives used the word “AI” about 143 times in 2 hours, which, as CNET estimates, is a whopping 1.153 times per minute.
No doubt, Google is incorporating AI into search, Gmail, Sheets, and most, if not, all of its applications. It’s necessary to keep pace with Microsoft, which made a splashy February launch of its ChatGPT integration into Microsoft Edge, Bing, and other apps.
Google’s main revenue generator is through paid ads on its search, which constitute roughly 58% of all revenues for the company. Plus, Google commands 58% of the global search ad revenue. Ad revenues have fueled Google’s success for over two decades.
Will chatgpt and ai cannibalize google’s search ad revenue?
What we are now witnessing with ChatGPT and other Chatbots is the next phase of searching for information online. Instead of the basic approach of using search terms and keywords, which has existed since the inception of the Web, people will now engage in chats or conversations with AI.
The whole enterprise or nature of search is morphing into something where people’s need to visit different websites or webpages is likely to diminish. Why? Because AI can assimilate information from many different websites and distill the information into a conversational chat. Even if there are links to the sources, as Bing provides, it’s an open question whether people will even need to click through to the underlying source any more.
For example, I asked Bing’s Chat what exhibitions are showing at the Art Institute of Chicago. And Bing responded with all the information I needed:
If I’m right that people’s visits to websites will diminish with the use of ChatGPT and other AI chats, including Google’s own apps, then what will happen to ad revenues for Google search? With fewer visits to websites, the value of “click through” ads may decline.
Of course, ads can be integrated right into the Chat conversations. The chat displayed above could, for example, include an ad for the Art Institute or businesses that buy an ad keyed to such topic. Under this scenario, the paid ads are shifted from the search engine results to the Chat conversations.
But, even if this shift occurs, it’s still uncertain whether people will click on ads in Chat conversations as much as they did with search results. Presumably, Chat conversations will be more efficient in delivering information, which might obviate the need for people to click through websites to find the information they are looking for. For example, Chat conversations can seamlessly generate travel plans for people. That makes this kind of sponsored ad less useful, if not useless. To deal with this possibility, Google could change from a rate based on click-throughs to a rate based on public displays (even absent any clicks). That would raise the next question: will businesses be willing to pay for it?
The question is not whether Microsoft’s Bing captures more market share of search from Google, as some outlets have focused on. Instead, the question is whether ChatGPT and other Chat apps, including Google’s own Bard, cannibalize the total ad revenue for search?
We’ve already seen how one simple technological change can have a massive cascading effect on ad revenues. Apple’s “Do Not Track” feature diminished the value of Facebook’s and other social media’s ads because they were less targeted to individuals. An analogous example is how adults under 30 years old regularly get the news from social media instead of news websites.
My suspicion is that ChatGPT and the integration of Chat into search will have a similar effect. Sticking with its traditional search engine doesn’t seem to be a viable option for Google. But integrating Chat into search may cannibalize the total ad revenues derived from online searches. It’s no wonder that Google reportedly called a “code red” meeting, even bringing back founders Sergey Brin and Larry Page, upon the release of ChatGPT back in December 2022.
What does ChatGPT say?
I asked ChatGPT for its view. Here’s what it said:
Answer from ChatGPT on Google Search:
ChatGPT answer on whether it will cannibalize the ad-based business model of search
You raise a valid point that the integration of AI and chatbots into search could potentially impact the traditional advertising business model of search engines like Google. With AI and chatbots, it’s possible that users may be able to get the information they need directly from the chatbot, without needing to visit websites or click on ads.
However, it’s important to note that advertising is a highly dynamic and adaptable industry. As the technology and behavior of users change, advertisers and search engines will likely adapt their strategies to remain effective. There are several potential ways that search engines could continue to generate advertising revenue in a world with chatbots and AI-driven search:
1. Native advertising: One potential option is for search engines to incorporate native advertising into chatbots or other AI-driven search tools. Native ads are designed to blend in with the content around them and can provide value to users while still generating revenue for advertisers.
2. Voice-based advertising: As voice assistants become more widespread, there may be opportunities for advertisers to reach users through voice-based ads. For example, a voice assistant could play an ad after answering a user’s question.
3. Sponsored results: Another potential option is for search engines to continue to offer sponsored results alongside organic results. Even with chatbots and AI-driven search, there may still be opportunities for advertisers to promote their products or services through sponsored results.
4. Subscription-based models: Search engines could also explore subscription-based models that provide users with ad-free search experiences, similar to how many streaming services offer ad-free options for a fee.
Ultimately, it’s difficult to predict exactly how the integration of AI and chatbots will impact the advertising business model of search engines. However, it’s likely that search engines and advertisers will continue to innovate and adapt their strategies to remain effective and profitable in a changing landscape.
ChatGPT’s answer is pretty equivocal. I guess we’ll have to see how the search market plays out.