Alphabet shares extended losses on Thursday, down over 5% as AI bot launch dissapointed.
Microsoft’s (MSFT) new AI-powered version of Bing could rock Google’s (GOOGL stock) search engine empire. But regardless of whether Microsoft eventually wins the AI war or not, the company is definitely making headlines. The declaration of war on Google is a double-edged sword and could also bring new problems for Microsoft.
On Tuesday, Microsoft announced that it is integrating the latest ChatGPT technology into its Bing search engine and Edge web browser. This integrates the dialog-oriented AI tool directly into the search experience. Microsoft wants to benefit from the public hype surrounding the chatbot, which has erupted since its surprising release less than 3 months ago.
According to UBS estimates, ChatGPT already has more than 100 million users. According to analyst Lloyd Walmsley, it took TikTok three times as long to reach such a number. On Instagram, it took about ten times as long.
Tuesday’s announcement is considered Microsoft’s clearest challenge to its arch-rival Google in its domain – and it’s not exactly subtle: “We want to have a lot of fun making search more innovative, because it’s high time we did it,” said Windows CEO Satya Nadella at a media meeting at the company’s headquarters near Seattle on Tuesday.
Google responded with its own event on Wednesday morning, announcing that it also intends to add additional AI capabilities to its search engine. Just a few days earlier, the company unveiled its own conversational AI service called Bard.
Brad was a huge flop.
According to a CNBC report Monday, Google CEO Sundar Pichai has asked all company employees for their help in testing the service before releasing it to the public.
Alphabet’s stock price fell 8 percent Wednesday morning after the company’s event. Microsoft’s share price, on the other hand, rose 0.5 percent after gaining more than 4 percent on the previous trading day.
Google is rightly concerned. Even compared to other tech giants, Microsoft is in a unique position to challenge Google’s search engine dominance. As the operator of the second largest cloud computing service in the world, Microsoft has a network infrastructure that can rival that of Google. Microsoft is also the only tech giant besides Apple to surpass Google’s $60 billion annual free cash flow.
But the history of the search market before and after also shows why it will be difficult to oust Google. Bing has never exceeded 4 percent market share, while Google’s share has rarely fallen below 90 percent since 2009, according to data from Statcounter. And Google now even has its own verb that everyone knows: googling.
Add to that the long-established relationship between Google and those who bear the cost of search. Jefferies analyst Brent Thill says Microsoft “will need a crowbar to get advertisers away from Google.”
A success could bring Microsoft but also a number of new problems. The company is no longer flying under the radar of regulators bent on cracking down on big tech. The planned takeover of video game manufacturer Activision Blizzard is currently encountering resistance on both sides of the Atlantic.
The UK’s competition and markets regulator, the Competition and Markets Authority, said on Wednesday that the proposed takeover would hurt players if no concessions were made. The US competition authority FTC has already filed a lawsuit to prevent the takeover. The main point of the uproar is that future PlayStation players may not have full access to the Call of Duty game.
By contrast, if Microsoft can capture just a small slice of Google’s search engine business, it would further expand its already large footprint in several key tech markets.
Not to mention the additional financial muscle that would come from participating in an advertising business that currently generates over $200 billion in annual revenue and is expected to grow to over $300 billion by 2027.