ChatGPT failed to kill Google Search

A year ago it wasn’t clear how AI was going to work out for Alphabet, which missed out on the first-mover advantage held by OpenAI’s ChatGPT.

The fear was that AI competition would eat into traffic for Google’s all-important Search business. And that incorporating AI answers into its own searches could cannibalize revenue, since customers would be less likely to pay for their blue-linked pride of place if people got all their answers up top. Those fears have not materialized.

AI is “driving an expansionary moment in search,” Google CEO Sundar Pichai said in his remarks at Alphabet’s investor presentation Friday.

“When people use AI-powered features, they use Search more — in fact, queries reached an all-time high last quarter,” he said. “AI Overviews and AI Mode are driving user engagement and AI-powered ad tools are driving better ROI for advertisers.” It helps when your distribution scale is practically unmatched: Google said its Search AI Mode has already crossed 1 billion monthly active users, while AI Overviews now have over 2.5 billion.

Outside traffic numbers from Similarweb seem to agree, showing a recent uptick in global visits across Google after falling slightly when ChatGPT first came out:

Bank of America recently said it thought Alphabet’s new AI ad formats noted at its I/O conference “should help capitalize on growing AI search format usage and could accelerate Search monetization.” Of course, Google’s win is the rest of the web’s loss. AI Overviews are tanking publisher click-through rates, and though Google just introduced an opt-out tool under regulatory pressure, few publishers can afford to disappear from a search engine with 90% market share.

With Google incorporating AI into all parts of Search, the success of its stand-alone chatbot Gemini is becoming less important, as evidenced by the overall growth in Google traffic. Many have previously remarked that Gemini lagged the popularity of ChatGPT, but even that is doing pretty well, recently growing market share and gaining on leader ChatGPT, according to data from Apptopia:

In all, Google’s main cash cow, Search, has seen growth accelerate last quarter, growing 19% year on year.

And Alphabet is making sure it has the capital to keep it that way. Last week, the company announced a massive $80 billion equity capital raise to fund its massive computing infrastructure push. Alphabet expects to spend an eye-watering $180 billion to $190 billion on capital expenditure this year alone, a financial war chest that startups like OpenAI simply cannot replicate.

OpenAI may have had the first-mover advantage, but Alphabet is proving that the ultimate advantage is still having billions of built-in users — and the endless billions of dollars required to keep them there.