All dynasties eventually come to an end, whether they were the Pharoahs of Egypt, or the Romans of the ancient world, or the Boston Celtics of the 1960s and early 80s. In business, it ends in one of two ways: the business adapts and thrives or gets left behind. Amazon (AMZN 3.89%) is a great example of the former. What started as an online bookstore is now the largest online retailer and the world's leading provider of cloud services. On the other hand, companies like Borders and Blockbuster failed to keep up with change and went out of business altogether.
Alphabet's (GOOG 2.45%)(GOOG 2.45%) Google Search has enjoyed a tremendous run as the world's preferred search engine, but change is coming. Let's look at the threat and how Alphabet is adapting.
The ChatGPT threat
The release of the Microsoft (MSFT 2.44%)-backed generative chatbot ChatGPT changed a lot, especially in the investing world. Talk on Wall Street and among droves of retail investors shifted from interest rates and recession to artificial intelligence (AI) and new opportunities in tech stocks. It also led some to question whether Alphabet would keep its stranglehold on the search market. Google Search is so much a part of society that Googled, Googles, Googling, and even Googleable are official words appearing in the Merriam-Webster dictionary.
From the chart below, it's easy to see why.
Source: Statista.
When conducting searches, 85% of us choose Google. Many challengers have come and gone over the years, but few have made a dent in Google's dominance.
But ChatGPT is different. It isn't just another search engine; it's a bot that can answer queries conversationally and generate original content. This is a distinct threat from the ones Alphabet has dispatched in the past. But AI opens up a wealth of possibilities for Alphabet as well. Let's look at the scope and what Alphabet has up its sleeve.
How lucrative is Google Search to Alphabet?
To understand the scope of the threat, investors should know just how much Alphabet makes from Google Search. Alphabet has several revenue streams like YouTube and Google Cloud, but Search is its bread and butter. Google Search brought in $162.5 billion in sales in 2022, or 57% of the total.
Sometimes, a chart tells the story best:
Source: Alphabet.
The story is the same in 2023, with Google Search accounting for $83 billion, 57% of the total revenue of $144 billion. Clearly, losses in market share of Google Search would be devastating to Alphabet's success.
But Alphabet isn't sitting idly by waiting for chatbots to take its business, either.
Will ChatGPT replace Google Search?
The billion dollar question, whether chatGPT (or something similar) will make Google Search obsolete, is complex. First, Alphabet has spent billions over the last several years investing in its own AI solutions. The release of ChatGPT gave it the kick in the pants it needed to begin rolling them out. For instance, users can try the company's generative chatbot, Bard. For the information in these chatbots to be up to date, they draw from info posted on the internet, such as Google Search results. In another example, Alphabet has released Google Lens, which is integrated with Google Search and allows users to search from images. This is an excellent tool for language translation and product searches. It also solves a problem we have probably all faced: How do I search for something without knowing the name of it? AI makes image recognition possible. So, while the way we search will undoubtedly change in the near future, Google Search and its wealth of information give Alphabet a huge leg up on competition.
NASDAQ: GOOG
Key Data Points
The second part is whether other companies have the industry expertise to monetize the solutions and take market share from Google and its new initiatives. When ChatGPT was launched, it gained massive popularity, but its traffic has been decreasing consistently and significantly since then. ChatGPT is not quite ready for prime time. The information isn't updated in real-time (it's actually from 2021), and it isn't the silver bullet some made it out to be. Microsoft made a massive investment to bring ChatGPT technology to Bing. However, it still needs to lure away customers deeply entrenched in Google products and then monetize them. Remember, Google hasn't been uber-successful for a decade by chance. It will be difficult to topple them, even for Microsoft.
Many people were ready to sound Google's death knell when ChatGPT hit the mainstream. But this is way too premature. The way we search is changing, and it is a risk to Alphabet. However, it could also be an opportunity for the company to lead the change and thrive for many more years.
