The first domino may be falling in Bing's war on Google.
According to a report in The New York Times, Samsung, the leading smartphone maker, is considering dropping Alphabet's (GOOG 0.47%) (GOOGL 0.49%) Google as the default search engine on its devices and replacing it with Microsoft's Bing.
The news comes just two months after Microsoft unveiled the new ChatGPT-powered version of Bing, which embeds chatbot features into the search engine, and shows how fast the competitive landscape is changing in search following the release of ChatGPT.
Samsung's big call
According to The New York Times report, Samsung is considering leaving Google for Bing, and the threat alone sparked a "panic" inside Alphabet's headquarters.
The search leader had already been scrambling to formulate a response to OpenAI's launch of ChatGPT last November, as the chatbot poses a clear threat to Google as a source of information. The news about Samsung represents the first sign that Alphabet's worst fears are coming true.
Samsung hasn't committed to Bing just yet, but the fact that such a high-profile electronics maker is considering defecting from Google would have been unthinkable just months ago. As a top user of Google's Android mobile operating system, Samsung has long been a close partner of Alphabet.
Google reportedly paid Samsung $3.5 billion in 2017 to be the default search engine on its devices, and the Times estimates that the relationship is worth $3 billion annually to Alphabet.
That only makes up approximately 1% of Alphabet's annual revenue, but the implications for Samsung's move could be far-reaching. It's a sign that Google now has a credible rival in Bing, and it gives Google's search partners like Samsung and Apple negotiating leverage to use against the search leader. Samsung doesn't have to switch to Bing to benefit from it. It could merely use the threat of doing so to extract a larger payment from Alphabet.
Similarly, advertisers are also likely to pay more attention to Bing, experimenting with it as a new channel, which could lead to declining auction bids on Google.
Google's next move
In response to the threat from Bing, Alphabet has unleashed several new projects, including refining the Google search engine and introducing a brand-new search engine.
However, the company seems to have been taken by surprise by the launch of ChatGPT, and has been rushing since then to counter the threat from OpenAI. It hastily launched Bard AI, its own chatbot, the day after Microsoft unveiled ChatGPT, but Bard flubbed a question in Google's own presentation, and Alphabet stock dropped on the news as the early reviews were dim.
Meanwhile, Alphabet seems to be struggling with reigniting a culture that has long been known for bloat and excessive cautiousness. The company acquired highly regarded AI research lab DeepMind nearly a decade ago, and CEO Sundar Pichai even said the company pivoted to being an AI-first company seven years ago. However, despite those moves, Alphabet has allowed Microsoft and OpenAI to dictate the narrative in generative AI so far.
Googlers have even joked about developing products for "pantry mode," or to stash away in case they are needed at some point in the future, evidence the company is focused on protecting its market leadership rather than innovating new products.
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Key Data Points
A lose-lose for Alphabet
For Alphabet, it's hard to see a scenario where the artificial intelligence battle with Microsoft benefits it. Even if it emerges victorious and Google Search retains monopoly-like market share, the company will have to spend vigorously to defend it, and Samsung's threat shows that companies are already taking advantage of the opportunity to move away from Google or extract further tribute from it by using Bing as an alternative.
Apple, to which Google pays an estimated $20 billion to be the default search engine, could use the same tactics to negotiate a higher payout from Google.
Alphabet stock sold off modestly on the Samsung news, a sign that investors are already adjusting their expectations based on the threat from Bing. Still, the company brings in more than half of its revenue and profits from search, and that business now has a giant target on its back.
Alphabet investors should tread lightly with the stock, as the upside is likely to be limited until it can convince the market that its search empire is safe.
