Google’s AI research overhaul raises ‘more questions than answers’ for its dominant advertising business

By the end of the year, more than a billion people around the world will experience a different Google search.

New generative AI capabilities will give users more complete and direct responses, offering a conversational overview powered by AI technology.

The transition marks an overhaul of Google’s core search product. And because many people experience the Internet through Google, these changes amount to an overhaul of how millions of people use the Web and the billions of dollars companies make from it.

Google’s transition to an AI-based response engine is a bulwark against an emerging AI threat.

It’s also a strategic bet: disrupting the lucrative search ecosystem that Google has built will pay off by opening up space for a new world order influenced by AI.

“There are still more questions than answers about how Google’s search ad revenue will fare with the introduction of AI overviews,” said Evelyn Mitchell-Wolf, senior analyst at eMarketer.

But OpenAI and Big Tech rivals are moving forward. They are deploying new AI services as raids against Mountain View’s search empire. Google’s standing still while others move forward poses its own risks.

While Google’s AI initiatives are designed to make internet queries work better, many sites that rely on traditional search results may suffer from a new paradigm. The same could happen to Google’s ad-supported search business, the heart of its profitable operation.

The fact that Google has established itself as an everyday verb, the dominant way to access information on the web, demonstrates its enduring power as an all-encompassing gatekeeper.

More than two-thirds of the company’s total annual revenue comes from online advertising. And the search business is a big part of that. Google commands more than 90% of the market, surpassing the 4% claimed by Bing, from rival Microsoft (MSFT), according to data from Stat counter.

In obvious and subtle ways, if something can’t be discovered by Google, it might as well not exist. Google claims default status across browsers and devices. And for most people on the internet, searching on Google is the path of least resistance; there’s too much friction to look for something elsewhere.

That’s what makes Google’s move into AI-powered search so significant. “The average consumer wouldn’t adapt their search behaviors to generative AI until Google launched it,” said Mitchell-Wolf.

Against criticism that Google’s AI push could cannibalize the existing business, executives compared AI initiatives to other technological changes which led to growth and new formats and engagement for advertisers. Search, in Google’s view, is more than just a list of blue links, and people turn to the service with their questions, from quick checks to deep explorations.

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“We have a deep understanding of information needs and a solid technology foundation, and we continue to reimagine what Search can be to serve users in new ways,” Google said in a statement.

The company is relentlessly data-driven, so internal testing is likely to show that the AI ​​overview summaries lead to different types of clicks and activity, not necessarily less overall web usage, said John Wihbey, professor of media and technology at Northeastern University.

Early findings that Google has shared publicly suggest that AI overviews can increase engagement.

At the Google Live Marketing event on Tuesday, the company said that links included in AI overviews receive more clicks than if the page appeared as a traditional web listing for that query. Google also said that people who use AI overviews use Search more and are more satisfied with its results.

At least for now, AI overviews offer a souped-up version of search advertising.

Echoing Google’s previous move to place ads at the top of search results selling prime digital real estate, the company announced Tuesday that it will begin placing ads in a section called “sponsored” in the AI ​​Overview.

Rand Fishkin, CEO of SparkToro, an audience research software company, said that Google likely believes two things to be true: that they reduce the risk of disruption or competition from other AI-based response engines by implementing their own. ; and consider the risks to their core paid advertising business to be relatively light or even non-existent.

It may be that the AI ​​overview features do not have a negative impact on paid search volume, perhaps because they rarely interfere with the average number of clicks on paid results, he said. Or they have a positive effect on the average number of searches people perform, offsetting any drop in ad clicks.

In a less flattering light, Google’s AI efforts look like a desperate struggle.

Scott Jenson, a former Google employee who left the company last month, said the AI ​​projects he was working on “were poorly motivated and driven by panic that as long as there was ‘AI,’ it would be great.” In a post on LinkedIn Earlier this week, he said the company’s shortsighted approach was not fueled by users’ needs, but by “an absolute panic that they are being left behind.”

But what some critics consider a clumsy and reactionary stance, others describe as an urgent defense.

If AI models are the next platform, similar to the transition to mobile phones and apps, Google cannot afford to be left out.

Another way to think about Google’s approach is to look back to the early days of social media and other emerging but established technology platforms. His sales pitch to the market was based on growth. At least for a while, accumulating users and demarcating territories was more important than making money.

“Anytime a consumer opts for another search destination, it’s a missed opportunity for Google,” said Mitchell-Wolf. “If we are left behind in the AI-driven search race and consumers end up preferring AI-led search experiences, there will be fewer queries to monetize. How monetization will happen is secondary to whether it will happen.”

Hamza Shaban is a Yahoo Finance reporter covering markets and economics. Follow Hamza on Twitter @hshaban.

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