A major shot was fired across the bow this week when Microsoft (MSFT 3.09%) announced it would be integrating Open AI's revolutionary artificial intelligence (AI) chatbot into its Bing search engine. In response, Alphabet (GOOG 9.50%) (GOOGL 9.66%) -- parent company of Google and the dominant player within search -- announced a rival chatbot called Bard that it is going to start rolling out to users in the coming months. Both AI tools are trained on billions upon billions of data inputs to help output extremely human-like written results that are the next step in the evolution of search engine technology.
A new race is heating up with advanced language learning models. Other entrants in the race include Chinese companies Baidu and Alibaba, which both announced AI chatbots under development this month as well. But this article will focus on the American competitors and what these new chatbots could mean for these two U.S. companies.
Will Microsoft be able to steal users in the lucrative search engine market from Google? Or will Alphabet be able to retain its pole position? Let's investigate.
Microsoft: A strategic investment and first mover push
For those unaware, Microsoft has the second-most-popular search engine in the world called Bing. However, with virtually zero market share on mobile devices and less than 10% market share on desktops, Bing only has an estimated 3% overall share of the total search engine market. Google's share is estimated to be 93%, making it a virtual monopoly in the space.
Microsoft is looking to change this lopsided competition with its recent integration with ChatGPT, the advanced language learning chatbot from a start-up called OpenAI. Microsoft has invested a whopping $10 billion into the company and just announced an integration where Bing and Microsoft Edge (its revamped internet browser) users can make queries to ChatGPT alongside traditional searches. ChatGPT obtained 100 million users just two months after launch, making it the quickest-growing internet service in history.
Share prices of Microsoft have jumped around 5% on this announcement, with CEO Satya Nadella saying "the race starts today" in reference to its new competition with Google.
Alphabet: Historical acquisition and established users
While Microsoft has landed the first punch, Alphabet will clearly not go down without a fight. Google Search has over 4 billion regular users worldwide who also use Google's free services like Gmail, Google Drive, Google Calendar, and Google Pay. It will be very difficult for Microsoft to break these consumer habits, especially if Google's Bard chatbot can produce similar results to ChatGPT.
I think it is also clear that Alphabet has been thinking about AI for quite some time. The acquisition of DeepMind over 10 years ago speaks volumes to its research philosophy. DeepMind is the premier AI research company around the globe, developing tools that range from the entertainment side of things, like its AlphaGo product that beat professional Go players, to scientifically revolutionary products like AlphaFold, which uses AI to predict over 200 million protein structures for the biosciences market.
DeepMind has been integrated into Alphabet products for years and is likely being utilized to a great extent with the Bard chatbot. From my outsider's perspective, this gives it a fantastic starting position as it tries to compete with Bing's new features.
So who will win?
There is a simple reason Microsoft is pushing so aggressively to try and win back some market share in search: money. Google Search is the most lucrative business in history, generating over $42 billion in high-margin revenue just last quarter. Even if Microsoft only takes a small amount of the search market from Google, it could be a meaningful addition to its $83 billion in annual operating profits. Alphabet, on the other hand, is going to work tirelessly to maintain its market position because Google Search makes up the majority of its $75 billion in annual operating profits.
At this point, it is unclear who will win the AI chatbot and revamped search engine battle. Microsoft has made a strong first strike with its Open AI investment and its integration into Bing. But don't count out Alphabet/Google with its dominant market share and AI expertise at DeepMind. My gut tells me Alphabet will end up victorious due to the habits consumers have built up with it over decades and its quick response to Microsoft's new partnership. Either way, it will be fascinating to see how this battle for search engine supremacy plays out over the next five to 10 years.
