Well, that didn't take long. Just weeks after OpenAI launched ChatGPT, Microsoft (MSFT 0.13%) is now reportedly working on a way to incorporate it into its Bing search engine.
When OpenAI released its new ChatGPT AI bot -- a large language model (LLM) capable of writing code and telling jokes -- on Nov. 30, one of the first investor takeaways was that it could be a threat to Alphabet's (GOOG +1.61%) (GOOGL +1.75%) Google Search.
Alhough ChatGPT isn't connected to the internet, the implications of the interface are wide-ranging, and it's easy to see how it could challenge, if not replace, Google as it already gives better and clearer answers on some subjects.
In fact, Google issued a "code red" shortly following ChatGPT's release, and CEO Sundar Pichai redirected some teams to work on AI projects.
Despite Alphabet's attempts to diversify away from its search advertising business, about half of its revenue comes from Google Search and even more of its profits. Newer businesses like Google Cloud and other bets, which include its autonomous vehicle start-up Waymo, lose billions of dollars a year.
Image source: Getty Images.
The future is here
According to The Information, Microsoft, which is an investor in OpenAI, is working on a plan to launch an AI-powered version of Bing by March.
It's not entirely clear how Microsoft intends to use ChatGPT, but there are a number of ways AI can improve upon the standard internet search, which surfaces webpages that may or may not provide the information that the user is looking for. ChatGPT, on the other hand, is conversational and has the ability to distill information down to a paragraph, which traditional internet search does not do.
One potential application for an AI-powered search, for example, could be to take reviews from a site like Yelp and summarize it, so a user has an idea about the general consensus about a restaurant or a place of business. An AI-powered search also has the ability to add context to a search, something that Google's search typically doesn't do.
The rollout of an AI-powered Bing could be a slow one, as even OpenAI CEO Sam Altman has said, "it's a mistake to be relying on [ChatGPT] for anything important right now." However, better versions of ChatGPT will come along, and the technology for search and other purposes will only improve. The threat to Google is real.
NASDAQ: GOOGL
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The innovator's dilemma
Right now, Google is stuck in a classic innovator's dilemma. The company is well aware of the threat from AI. in fact, it has developed its own large language model, LaMDA, that many consider to be better than ChatGPT.
However, Google is reluctant to use AI in its searches because of problems with accuracy and bias and sees a "reputational risk" in making such tools available. There's also the dilemma that Google Search, in its current iteration, is highly lucrative, and the company would rather not tinker with that if it doesn't need to. In fact, the company has made few changes to the Google Search interface over most of its history. It's a highly efficient business as is.
That gives an advantage to OpenAI, a company that seems like it's innovating to push the limits of technology rather than just to pad its bottom line, and it positions the company as a fearless disruptor up against a stodgy goliath in Google.
NASDAQ: MSFT
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Even if it's successful, it will take time for Bing to challenge Google's search leadership, but it could be easier to upend Google than some investors think. After all, Google Search might seem to have significant competitive advantages, but those are essentially all attached to its brand and reputation as the best search engine. There are no switching costs or even network effects in play here, and if users believe there's a better way to get information, they're likely to switch.
It's a mistake for Google just to stand still while the technology moves forward. The company will have to take steps to defend its market share, but that could mean undermining its highly lucrative advertising empire that underpins its $1 trillion valuation.
If you're an Alphabet investor, the issue deserves your attention. The tech stock might look cheap, but it could fall a lot further if its search tool starts to seem in jeopardy.
