Google has two big challenges that is yet to solve

Google, a titan in the tech industry, or for some, the ad industry, may be facing an existential threat that could lead it down a dark path of irrelevance. At the heart of Google’s empire is a business model that is the fabric of online advertising. This ecosystem is worth a staggering 1.1 trillion dollars, where 200-300 billion is generated yearly from ads, Google’s share of the pie; the remainder stems from the vast ecosystem it has cultivated – websites, developers, workforce, and infrastructure.

What has Google actually built?

Website creation was once a cumbersome and complex task, has now been streamlined and democratized through user-friendly platforms known as Content Management Systems (CMS). Platforms like WordPress and Shopify allow individuals and businesses to construct and customize their online presence with ease. Estimates suggest that a staggering 1.58 billion websites exist, with WordPress being the platform of choice for around 810 million of them.

The dominance of WordPress in the CMS market, boasting a commanding 64% market share, underscores its unrivaled influence in shaping the online landscape. While WordPress as a company may generate a modest $1.3 billion in revenue, the platform’s ecosystem is estimated to be worth a jaw-dropping $636 billion at the end of 2021, a testament to its enduring success and widespread adoption.

Almost everything online is tailored to cater to Google’s algorithm. When Google changes its algorithm, everyone who owns a website or works with online marketing pays attention. Within weeks after the algorithm change, those who strive to remain at the top have made the necessary adjustments.

Google is the conductor, and the internet is the orchestra.

Google is the conductor, and the internet is the orchestra. By using its influence to maximize revenue and satisfy its customers, Google ended up altering the direction and nature of the internet.  Over time, every website became a product. Everyone began chasing page views, unafraid to employ whatever tactics necessary to acquire them.

One could say the avalanche of click bait articles, the standardized model of “Top 5 things you need to do” “Top 5 items you need to buy this year” that is being used at every single website – mainstream or not – is because this is the what the algorithm wants. And let’s not forget the FOMO every article seems to try and instill – “You need to read why doing this is better”, “If you’re not doing this, etc.” — underscores the extent to which content is tailored to meet these algorithmic criteria.

Many of us have noticed a shift in the internet’s landscape – it feels more repetitive and standardized than before, seemingly deteriorating in quality.  This change can largely be attributed to Google. Its influence on content creation practices has led to a homogenization of information, where the first pages of Google are filled with essentially the same content, only rephrased.

Google wanted to make search accessible, but it ended up impacting even the way we speak and write on the internet. If you want to get page views and have your opinion heard, well you better start talking precisely like Google wants.

A history of corporate pivots

However, this seemingly unbeatable model is now under siege.

The tale of Kodak’s downfall is a case in point Kodak invented the digital camera but chose not to make it commercially available because their primary business model revolved around supplies for printing analog photos. It’s like a printer eliminating the need for ink or paper. We know the story, because of them being reticent, they lost their market share and market leadership, and failed to capitalize on many of the opportunities that followed (i.e. phone cameras).

IBM’s journey is another example. IBM sold computers and laptops when these devices were a hot commodity. In the retail sector, the goal is to boost adoption, as this brings in customers and, consequently, revenue. Once growth slows down over the years, to increase revenue you start offering additional services (extended warranty, exclusive repair services like Apple), and you chase corporate customers and offer enterprise services. On the other side you work with your supply chain to lower the cost of the product. With lower costs and additional competition, commodities over time see their margins go down.  

Finding itself in a market with low margins and challenging growth prospects, IBM made the bold decision to exit the retail hardware business. This move was surprising at the time but initiated a series of transformations within the industry.  IBM was associated with personal computers in ways today Google is associated with search engines. IBM went into services, much as economies as they transition from industrial focused interests into the knowledge economy. Most people would say it was a bumpy ride but in the end, IBM had a successful transition.

Google, Microsoft, the chicken and the egg

The rise of artificial intelligence-powered search engines is unnerving for Google’s hegemony. Google was once a pioneer in technological innovation, giving us a lot of the tools we use on a daily basis today. Now it finds itself lagging in the AI race. ChatGPT was released 14 months ago, Google’s Gemini is yet to catch up to it in most benchmarks. Accusations of a “woke” AI have only compounded its woes, forcing the tech giant to reevaluate its strategy.

To regain a competitive edge, Google is leveraging its substantial resources, particularly its cloud capacity. Running AIs is not cheap, nor it is easy, but luckily having data centers across the world gives you the chance to provide more than your competitors. Which is exactly what Google is doing, giving Gemini 1.5 one week after release a 1 million token size. This is about three to five times more than its competition. But history tells us that companies, especially tech companies, that start giving freebies to increase market share only work if this is what people are looking for that. Outside some particular use cases, you don’t really need that many tokens just yet. What people want in AIs like ChatGPT is performance, and what they seem to avoid is getting preached by it.

Google did win market share in the past with this strategy. When it first started, storage capacity was still an expensive problem and the first email accounts you could create for free gave you 100MB if you were lucky. When Gmail launched, it offered 2 GB, a 20x freebie. But even Google couldn’t afford to give this for free to everyone, so for a long time you could only get a Gmail account if you were invited by someone.

We also saw a short, but fierce competition between smart assistants – Google, Siri, Cortana, Bixby and Alexa – – initially centered around smartphones before extending to smart home devices Despite their widespread adoption, these tools have fallen short of their promise to serve as true personal assistants. . This dynamic highlights Google’s inability to leverage its dominant position in the smartphone market to effectively train its assistant or create compelling value propositions for its smart home devices. In 2021, Amazon shipped 20% of the world’s smart speakers, while Google only 9%.

The extreme competition in the retail market also shows that even with Google’s market leadership, competitors can still develop products and tools that are just as good without the many advantages that Google can claim.

So why is Google behind in the race now? Google recently made a deal with Reddit to the tune of $60m a year to be able to scrape the data from Reddit’s user base to train future AIs, like Gemini. With emerging technology, partnerships are crucial for several reasons. They enable companies to acquire IP or knowledge that they cannot develop in-house and provide a network to boost sales or adoption of their own tools. This has been the approach Google used in the past, as Android is an open-source smartphone OS successfully adopted by all non-Apple manufacturers. To this extent, once you can’t use solutions provided by Google, you are basically cut off from the entire ecosystem and user base, as we saw with Huawei.

In the AI race, Google has so far failed to progress aggressively with its traditional partner- based approach in building partnership to build and sell products. Microsoft jumped at the chance to invest in OpenAI, a few days after ChatGPT was launched in Nov 2022. It also invested in Mistral, an AI startup from France that is also trying to catch up to ChatGPT. Based on news alone, Microsoft is diversifying its investments for AI solutions, while Google is still trying to find a way to train its in-house built AI.

For a company that once open-sourced many tools to build a rich ecosystem and gain market share from Microsoft, it now seems Google and Microsoft are in a chicken-and-egg dilemma – constantly changing strategies to either catch up or lead.

Google’s Frankenstein

Google, Apple, and Microsoft envisioned leaving most internet queries (navigational, instructional, informational) to their assistants – or at least that was the future they pitched.  In 2018 Google’s CEO showed how its assistant can book appointments, and most people at that time were blown away at having something akin to an AI in your smartphone. In the video, you see someone asking their phone to book dinner for them, the assistant calling the restaurant to inquire about availability, getting some timeslots in return, asking the restaurant to hold for a minute while it checked with the person requesting the dinner appointment if the time works for them.

Nothing really came out after that, either the technology was too complex or expensive, or the roll out of this function had other roadblocks along the way.

Microsoft is guilty of changing strategies half way through their product lifecycle as well; their Bing division can compete with Google but the company is hesitant to fund the rollout of many features exclusive to US consumers. The amount of money needed to compete with Google in Europe, for example,  is not worth the market share for Microsoft. The same amount of money can generate more return in some of its other lucrative divisions, like cloud.

For Google, an AI powered search means the end of its search engine business.

Bing with AI may not be openly competing with Google publicly, but it serves as a training ground for Copilot to excel in Microsoft’s enterprise solutions.

In any case, the vision these companies presented with their pre-AI assistants was a future where at some point your virtual assistant will do the googling for you. In this future, the plethora of interfaces that you might need to achieve a task will be reduced to just one – you and the AI. For Google, an AI powered search means the end of its search engine business.

We looked at what this is worth, and what this means for the industry in our article “The End of The Internet and The Last Website – The $1.1 trillion Challenge”. The conclusion of this future is that without a search engine, and the algorithm that comes with it – content creators, most websites that exist today – will not exist anymore Why bother building a website, sharing personal thoughts, demonstrating expertise, or promoting products or services when nobody will visit your site? The sole interaction with your website would be through a few AIs owned by mega-corporations, which would retrieve information for users.

Websites exist today because they derive value from interactions. Aside from a few exceptions like Wikipedia, most websites require revenue to sustain themselves, often generated through page views, clicks, interactions, newsletter subscriptions, and influencing purchasing decisions. However, if an AI – be it ChatGPT, Copilot, Gemini, or Claude – becomes an intermediary, the revenue stream disappears, at least in the current paradigm. Google faces the challenge of figuring out how to monetize this future to the same extent as web searches today while maintaining its role as the orchestrator in a world where everyone is part of the orchestra.

The more immediate problem is the AI pollution, only 14 months since ChatGPT was released, studies show a staggering amount of content online is AI generated – some say already 10% of the internet is made by AI, and by 2026 as much as 90% might be AI generated. For images and video, the numbers are and will be even more shocking. It took AI 1.5 years to generate as many images as photography created in 149 years.

Google has two challenges now, a way to accept and curate this new content and a mission to ensure its users remain engaged with its search engine as they come to the realization there are less and less humans and human content to be found online.

The future will likely feature a user interface that enables users to perform a multitude of tasks within a single webpage or window – from creating spreadsheets and charts for analyzing budgets, to creating presentations, videos, pictures, and sounds while browsing content. And the legacy way to search the internet, Google, will be a repository of AI generated content fine tuned to tell you what you “want” or “need” to see.

Today Google finds itself in a landscape where it sees competitors taking bold steps to ensure market dominance in the decades to come. Google is looking at the daunting task of redefining its value proposition.

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