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Is Google's Search Dominance at Risk?

Have you been wondering if Google’s dominance in search is finally at risk? You're in the right place. Today, we’re diving into the rapid rise of AI chatbots like Grok, Perplexity, and ChatGPT, and how they’re challenging Google's search empire. These emerging tools have the potential to completely transform the internet as we know it. If you’re invested in Google, we’ll highlight the key metrics you should keep an eye on moving forward. And stick around—there’s a big surprise at the end of this video that you won’t want to miss.

Google Search vs. Chatbots: Shifting Market Share

Let’s begin with a comparison between Google Search and chatbots like these. According to the latest reports, Google's market share in search has dropped below 90% for the first time since 2015. This is significant. However, these market share numbers don’t capture the whole picture. People may be using chatbots for certain types of queries, while still relying on Google for others. Even if chatbots are gaining ground, it doesn’t automatically mean Google is losing share in all areas. Chatbots excel at more conversational or complex queries, while Google is still better for retrieving specific websites, facts, or quick answers.

Impact on Google’s Advertising Revenue

If Google is losing search market share, it could impact their advertising revenue. This is where we should focus. Looking at Google's revenue growth over time shows strong results, but it’s important to note that Google’s revenue is divided into three key components. The segment we want to focus on is Google Services, which includes their ad revenue. When we compare Google Services revenue to their total revenue growth, we see that ad revenues have been a major driver of Google’s overall growth. Notably, in 2015, Google Services made up 99% of their revenue, but today it accounts for just 85%. Why? Because Google has successfully expanded into cloud computing and other areas, moving beyond just ads. They’ve also invested in various “moonshot” projects, many of which haven’t panned out.

Breaking Down Google’s Ad Revenues

To get a clearer picture of Google’s ad revenues, we can dive into their most recent SEC filing. Here, the company breaks down revenue by categories: Google Network, YouTube Ads, and Google Search & Other. The Google Search & Other category is what we want to focus on. If we track this revenue segment over time on a quarterly basis, we see some interesting patterns. One thing to note is seasonality—Q1 often shows a dip in ad revenues, so we should be cautious about interpreting a single bad quarter as a sign of a long-term downturn.

Google vs. Bing: Comparing Ad Revenue Growth

To better understand how Google’s ad revenues are performing, we’ve compared them with Bing’s estimated ad revenue growth. Interestingly, their growth patterns seem quite similar. To quantify this, we calculated the correlation between Google and Bing’s ad revenue growth, and the result is a high correlation coefficient of 0.94. This shows that the two are highly aligned, though there’s still some uncertainty.

Meta's AI-Powered Ads: A Threat to Google’s Revenue?

Speaking of revenue growth, Meta’s Q4 ad revenue surge to $47 billion, driven by AI-powered ads, is notable. Google is also set to benefit from using its Gemini AI to optimize ads and boost revenue. This means ad revenues are likely to keep climbing. But one thing to watch is impressions—the number of ads being served. There’s a limit to how many ads can be added to Google Search, as it already feels saturated with them. One workaround would be to increase the number of impressions even if searches decrease, but Google doesn’t report on impressions, unlike Meta, which occasionally references them. If you’re a Google investor, pressuring the company to disclose this metric could provide the clearest picture of whether the decline in search usage is impacting their bottom line.

The Importance of Monitoring Impressions

So while ad revenues may continue to rise, it’s the impressions data that could reveal whether Google is truly being affected by the rise of AI-driven tools.

Three Key Metrics to Watch for AI Chatbot Impact on Search

There are three primary metrics we’ve discussed to evaluate the potential disruption of AI chatbots on Google's search dominance: search engine market share, search revenues, and chatbot usage. Since chatbots aren't search engines, tracking search engine market share might not be the most effective method. Moreover, search revenues can be misleading for reasons we've already explored. Instead, it might be more insightful to use chatbot usage as a proxy for capturing search share.

Tracking the Rise of Popular AI Chatbots

So, what are the leading AI chatbots being used today? We’ve been following the progress of AI chatbots for a long time. Nearly a decade ago, we pointed out how chatbots were largely underwhelming, claiming that the idea of a "clever AI chatbot" was still a myth. Over the years, we've continued to observe the evolution of these tools. I visited a firm in New Zealand working on turning AI chatbots into digital humans, but honestly, I haven't yet seen a digital human that feels convincingly real. Even today, these avatars are not particularly impressive. However, as someone involved in this field, I appreciate the quote: "AI is the worst it will ever be today." This reminds us that AI is continually improving. If we reach a point where a digital AI avatar is indistinguishable from a human, there will be significant consequences for industries like jobs, but there will also be some benefits.

The Three Key Abilities of AI

When we think about how AI interacts with the world, the "three monkeys" concept does a great job of describing its abilities. AI is currently strong at conversing, listening, and inferring meaning from what you say, even when there are typos. Speaking and articulating thoughts are still areas that need improvement, but computer vision, like what we see in autonomous driving, is also contributing to AI’s overall capabilities. The listening and conversational skills of AI chatbots are what drive their success in communication today.

Chatbot Popularity and Market Share Insights

Diving deeper into generative AI chatbots, we come across some data—though often this information is from questionable sources, like SEO firms using tables as lead magnets. While these tables may appear helpful, they often don't provide verifiable data or clear sources. For example, when you ask Perplexity for its sources, it references a “first page Sage firm” without offering a direct explanation. When Grok analyzes the same data, it provides more context, offering ranges and acknowledging the uncertainty of estimates. One clear takeaway is that ChatGPT appears to be dominating the AI chatbot space.

Exploring Mobile Data for Insights on Chatbot Market Share

To get a better picture of chatbot market share, we can turn to mobile app data, and Sensor Tower’s report is one of the most insightful I’ve seen in a while. It highlights the impressive increase in generative AI app downloads and in-app revenue (IAP) globally. The United States leads the way, accounting for 45% of generative AI app revenue, followed by the UK with around 4%. Interestingly, downloads for AI chatbots are surging, while other categories like AI art generators have lost some steam.

When breaking down these figures by country, we see that ChatGPT is leading the global download chart, but Google's Gemini is in second place. Third is China’s chatbot, and fourth is Microsoft's. However, Grok is not included in these figures, as it falls under the X umbrella.

Regional Insights on AI Chatbot Adoption

When we zoom in on specific regions, things get even more interesting. For example, in the Asia-Pacific region, Google’s Gemini is gaining significant traction in high-population countries like Indonesia and India. This shows that Google is making substantial progress with its AI chatbot, especially in regions where an "everything app" model, like what X is trying to achieve, could be very successful.

Could Google Become an "Everything App"?

Could Google evolve into an "everything app"? This would mean integrating AI into various services like payments, ride-hailing, and more—similar to what X is doing with Grok. Google can certainly follow suit with its Gemini platform, blending it into its existing offerings. When you look at the top apps with the most monthly active users, Google stands out with four apps in the top 10: Chrome, Gmail, Google Photos, and Google Search. Google is already deploying Gemini in its services, but it’s also integrating it across these other platforms. The question is: How can we track Gemini’s revenue to assess its impact on Google’s overall business? If Gemini succeeds, it might compensate for any losses in search ad revenues.

Monetizing Gemini: A New Revenue Driver for Google

In the last quarter, Google mentioned that AI-driven overviews have increased search usage, with ads monetizing at rates similar to traditional search. This suggests that Google isn’t experiencing a significant drop in search traffic due to the rise of AI. Google’s premium subscription service, Google One, surpassed 100 million subscribers, with the Gemini Advanced features showing strong growth. As of last quarter, there were 4.4 million developers using Gemini, doubling over the last six months. These numbers show that AI is becoming a major growth driver for Google, integrated across its business rather than standing alone as a separate entity.

Google's AI Leadership: A Missed Opportunity?

However, there’s still the question of how Google lost its AI leadership. We previously explored this topic in a piece that is worth watching. It explains how AI, once Google’s supposed “secret weapon,” was sabotaged over the years by activists. This misstep is part of the reason why Google fell behind in the AI race, which makes for an interesting backstory on how things unfolded.

Conclusion

You’ve probably noticed ChatGPT’s dominance in the AI space and are wondering how to invest in the company behind it, OpenAI. We’ve done a piece on how you can get exposure to OpenAI shares if that’s something you’re interested in.