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:
ChatGPT’s answer is pretty equivocal. I guess we’ll have to see how the search market plays out.