A new browser war may be brewing; Perplexity AI has just released one, and OpenAI is reportedly set to launch one soon. The fact that these artificial intelligence (AI) start-ups are even building browsers at all speaks to the advantages that Alphabet (GOOGL 0.41%) (GOOG 0.20%) has.
These companies aren't launching browsers just for the fun of it; they're trying to make a small dent in the huge distribution and data moat that Google has established.
Let's examine Alphabet's advantages.
NASDAQ: GOOGL
Key Data Points
Alphabet's distribution and data advantages
Google doesn't need to build a new browser. It already owns Chrome, which has about 66% global market share and is pre-installed on billions of devices. For a large percentage of the world, it is their entry point to the internet. That gives Alphabet not only direct access to users but also a constant flow of browsing data, which feeds into its search and advertising ecosystem.
Perhaps even more important, though, is its Android operating system. Through Android, Google is the default search provider on roughly 70% of the world's smartphones. That kind of entrenched distribution creates a wide moat. It is also the default search engine on Apple devices and has revenue-sharing deals with other browsers like Opera. These partnerships are a bit less defensible, as Apple could go out and buy Perplexity tomorrow, but they are still important.
It's also important to consider Google's shift towards AI-driven search. While much of the early focus has been on Google's AI Overviews, the real shift is happening through its recently launched AI Mode.
AI Mode is a completely new type of search experience from traditional Google search. It turns Google into a conversational assistant that can help users navigate complex tasks, find products, summarize web pages, and answer multistep queries, all integrated right into its existing search bar. This is a big upgrade to the core Google search offering, and early feedback has been encouraging.
Google's AI Mode is powerful
According to a recent Oppenheimer survey, 82% of users found Google's AI search more helpful than traditional search results. Even more striking, 75% said it was more useful than ChatGPT. So, while some investors try to paint Google as an AI loser, in the real world Google is now leading the AI charge.
One of Alphabet's big advantages is that it doesn't need to change user behavior. Billions of people already use Google Search daily. Alphabet is simply enhancing that experience by layering AI into what users are already doing. Meanwhile, competitors are trying to create entirely new user habits by trying to convince people to switch to their apps and browsers. That's a much harder task than what Google is doing.
Google is also in a better position to monetize AI search. Most generative AI queries are expensive to run and difficult to monetize. That's why companies like Perplexity have tiered plans that can cost $20 to $200 a month for access. However, Google already has one of the most powerful ad networks on the planet. While it also has some paid plans, it can keep most AI search free and monetize it through targeted ads.
In addition, Google designed AI Mode to help improve the user shopping experience. Google recently introduced tools like "Shop with AI," which let users describe what they want, do virtual try-ons, and track prices. Google excels at monetizing commercial intent, and these features are ones advertisers are willing to pay for.
Also, let's not forget the importance of data. By controlling the browser, smartphone operating system, search engine, and ad network, the company has created a virtuous feedback loop, with every query, click, and conversion feeding into its ecosystem. That helps its AI models get better, improves ad targeting, and enhances the entire experience for both users and advertisers alike. That's another reason why distribution is so important.
Last but not least, these new browsers may actually end up helping Google with its antitrust case. Regulators have called for Alphabet to divest Chrome, arguing it gives Alphabet an unfair monopoly. But now that there's a growing number of AI browser competitors, that undercuts the government's argument.
Image source: Getty Images.
Is it time to buy Alphabet's stock?
Investors have been too concerned about the possibility of Alphabet's Google search business being disrupted to notice the huge advantages the company has. It also doesn't matter whether it's traditional search or AI -- more than anything, Google is in the content discovery business and it has huge distribution, data, and ad network advantages that will be hard for competitors to overcome.
Throw in its fast-growing cloud computing and robotaxi businesses, as well as YouTube and its leadership in quantum computing, and this is a stock you want to own. Best of all, it's cheap, trading at a forward price-to-earnings ratio of 19 times based on analysts' estimates for 2025.
