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Will Marketers Bet that Google Wins the AI Economy? (Thinks Out Loud Episode 433)

MidJourney generated illustration of three runners in a race to represent the idea of Google trying to win the AI economy

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Google faces enormous threats to its business. New entrants using artificial intelligence may provide a better search experience for their customers. Those same new entrants are also competing for Google’s massive ad revenues. And, of course, the search giant is fighting for its life in a government antitrust case. Those are major challenges — and a giant signal that Google might not win the AI economy.

At the same time, they’re still one of the world’s most valuable brands and a key driver of traffic and revenue for most businesses. So, which is it? Should marketers continue to bet that Google will win in the AI economy? Or is it time to chart a different course? That’s what this week’s episode of the Thinks Out Loud podcast is all about.

Want to learn more? Here are the show notes for you.

Will Marketers Bet that Google Wins the AI Economy? (Thinks Out Loud Episode 433) — Headlines and Show Notes

Show Notes and Links

You might also enjoy this webinar I recently participated in with Miles Partnership that looked at "The Power of Generative AI and ChatGPT: What It Means for Tourism & Hospitality" here:

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Transcript: Will Marketers Bet that Google Wins the AI Economy?

Well hello everybody and welcome back to Thinks Out Loud, your source for all the digital expertise your business needs. My name is Tim Peter. This is episode 433 of the Big Show and I think we’ve got a really cool episode for you today.

I want to start by talking about Perplexity. If you haven’t heard of Perplexity.ai, it’s an artificial intelligence powered search engine that focuses heavily on providing great answers.

I’ve said for years that “people don’t want a search engine, they want a find engine. “ And what we’re seeing happen in the marketplace right now, whether it’s people like Google’s AI Overviews or Bing Copilot or Perplexity, we’re moving towards a legitimate answer engine where the tool is simply answering the question for you. Of course, ChatGPT belongs in there as well.

The challenge for Folks like ChatGPT and Perplexity is that they have to find a way to pay for their product. If you think about Google, it is one of the most profitable businesses ever built. It’s an extraordinarily profitable company. And folks are trying to figure out how to monetize the answers they’re providing.

Well, according to Digiday, Perplexity has come up with one answer — and shocker — it’s advertising. According to Digiday, Perplexity’s new advertiser pitch deck shows how the “AI search startup hopes to win over advertisers later this year as it works to set itself apart from competing startups like ChatGPT and giants like Google.”

The article continues,

According to a copy of the pitch deck obtained by Digiday, the plan is to integrate ads within users, queries, and answers, potentially as soon as the fourth quarter of 2024.

It finishes up by noting that “…although the pitch deck didn’t talk about pricing, a source within Perplexity confirmed the goal is to target CPMs north of $50.”

Now for those of you not familiar with CPMs, that’s a very traditional way of selling advertising where CPM stands for cost per thousand impressions or cost per mille. You know, because so many marketers speak Latin as their first language. It’s a thing that’s existed for a very long time, though, and it really is what it stands for, cost per mille or cost per thousand. Keep that CPM point in mind, because we’re going to come back to that in a bit.

Nonetheless, Perplexity’s pitch deck is the most aggressive approach that I’ve seen so far to going after Google’s massive ad revenues, to hit them where they live.

As a reminder, when we looked at Google’s earnings a couple of weeks ago, Google had just shy of $85 billion in revenues last quarter and almost $24 billion in profit.

Among the five big tech players who I pay the most attention to — Apple, Google, Facebook, Amazon, and Microsoft — Google’s profits were the highest among any of them. So going after their ad revenues is an important first step for anyone who’s looking to challenge Google as king of the hill and bump them out of big tech.

Think about it. If you’re a marketer, you have limited budgets. That’s generally the truth. There are only so many places where you can afford to spend your ad dollars. I’m not usually a zero sum thinker. But marketing budgets in practice tend to be somewhat zero sum. Every dollar you spend with a new marketing channel is one dollar fewer for Google.

So this is a potential threat to them that’s worth taking seriously. And it fits into a larger pattern of all of the threats that Google is facing right now. And that brings up a question of, are you willing to bet, as a marketer, that Google wins the AI economy? Are they the ones who are going to win in the long term?

I’m going to be honest, I don’t know the answer to this. I tend to think in bets a la the great book, Thinking in Bets by Annie Duke, the poker player. And I don’t know that I would bet a lot one way or the other at the moment. I’d call it roughly 50/50.

To be fair, I think Google has the best odds of anyone of winning. They probably have a 50% chance of winning. I think maybe Microsoft and OpenAI have a 25% to 35% percent chance of winning. And everyone else combined makes up the last 15% to 25%. Perplexity is in that mix, but they’re only a very small part of that mix, in my mind, at least for now.

To break this down a little bit, SimilarWeb shows that Perplexity got 57.8 million visits last month. Bing, by contrast, got 1.78 billion. That’s billion with a “B,” to Perplexity’s 57.8 million with an “M.” Google got 83.5 billion.

Google is almost 50 times larger than Bing, and over 1,400 times larger than Perplexity. So, it’s tough to see Perplexity as a big threat today.

That could change. They could grow. They could grow really fast. But they’re a long way from being a major threat at the moment, even if they do take a couple of ad dollars away from Google.

So it makes it tough to bet against Google. At the same time, let’s talk about why I wouldn’t bet for them. Let’s start with why I wouldn’t bet for them.

First, they have a fairly fragmented product strategy. Just to think of all of the places they’re working to put AI and the different names they’ve tagged all of these with.

  • You’ve got Google AI on Android.
  • You’ve got features like Magic Editor in Google Photos.
  • You’ve got creative tools like ImageFX, MusicFX, and Video Burst.
  • You have AI Overviews in Search.
  • You have Cloud Vertex AI for developers
  • And of course, AI built into Google Ads that doesn’t really have a name, it’s just sort of there.

Even Gemini, their primary product, they offer in four tiers. There’s Ultra 1.0, Pro 1.5, Flash 1.5, and Nano 1 0.

Lots of these tools, lots of these things I’m talking about are very cool. They’re also incredibly difficult for the marketplace to understand and keep up with. I do this for a living. I spend a lot of my time researching various products and services that are available to my clients and to marketers and other business leaders. And it’s really hard to keep up with their whole product portfolio.

If you think about this from a pure marketing perspective, that’s not a great marketing message. It makes it really difficult for potential customers to keep track of what they’re doing and what they offer and what the benefits are to you as a customer, which makes it tough to choose them sometimes.

By contrast, lots of the competition that they’re facing, like Microsoft and OpenAI, are well funded and have much clearer product strategies.

Microsoft’s entire product strategy is wrapped up into what they call Copilot. You’ve got Windows Copilot, Microsoft 365 Copilot, Bing Copilot, Excel Copilot, GitHub Copilot, Outlook Copilot, and so on. Microsoft also has enormous enterprise sales capabilities, so they can get their corporate customers, their biggest group of customers, to keep using them.

Google also has this little problem with the antitrust suit that they’re facing right now. And not doing a great job of it. They just lost the first phase of it. I had a whole episode about that a few weeks ago, which I will, of course, link to in the show notes. It is tough, however, to run forward when you’re looking over your shoulder because, you know, you might be big tech, but big government is gaining on them, at least at the moment.

Most importantly, and the biggest challenge I see for Google here, is that ads placed alongside AI search results, a la the Perplexity deck, might not be cost per click or CPC ads, which Google has always done. But might be CPM or cost per thousand impressions. If you’re Google, that could be a big problem.

CPM ads are not anywhere near as lucrative as CPC ads. They’ve never been. Facebook, which is the third most visited site in the world and the second biggest seller of advertising after Google, made $39 billion in revenue last quarter and almost all of that from ads. Again, I mentioned Google made $84 billion overall, $48 billion of that from search ads alone. That is, mostly from CPC. It made another $36 billion from other sources. Still mostly ads. They make a ton of money on this, mostly on CPC. And you probably know this, but CPC ads print money because they hit customers when they’re ready to buy. They’re right there, they’re as good as any other search result, or as bad, if you choose to look at it that way. They’re a good answer to the question, and people click on them, and Google makes a ton of money.

If AI results begin to overtake traditional search engine results pages — and the ads alongside them — Google could see a decline in revenue simply because the new ad formats or new ad models may not work as well as what they have today. That may be great for consumers, but it might not be great for Google’s business. It also might not be great for your business as an advertiser, so something you want to think about here.

This reality underscores the challenging path that Google has to navigate. They can avoid building AI into their most lucrative search engine results pages because they don’t want to lose clicks on ads. But that could cause customers to switch to a better search experience on Perplexity, Bing, ChatGPT, or whomever, which would hurt Google’s revenues.

Or, they could build AI into their most lucrative search results to keep customers on the SERP, on the search engine results page, and lose clicks because customers get an answer or don’t find the ad necessary. Which could hurt their revenues.

Google could be in a “damned if you do, damned if you don’t scenario.” That’s a very real problem for market leaders generally, and for Google specifically. Even if they win at keeping the most traffic, they could lose from a revenue perspective.

Now, I’m not convinced that either of those are entirely likely, but they are plausible.

There’s obviously a third scenario where Google successfully incorporates very high value ads into the search engine results that work both for consumers and advertisers and grow its revenues. They have enormous incentive to find solutions that do that. I wouldn’t bet against them finding that, to be honest, because it’s existential that they do.

They cannot afford to lose.

And they have a whole bunch of positives in their favor of why they could win.

The first is that they have an enormous, enormous amount of money available to play with. Google is sitting on about $100.7 billion in cash. Now, I don’t know about you, but I think there’s a lot you can do with $100 billion to support your business. I’m pretty sure I could find some things to do with it, right?

We know that they have amazing technology and significant computing capabilities. We know that they have a ton of talent whose core job, whose whole reason for being at Google every day, is to solve this problem.

And they also have one other massive advantage that we always have to keep in mind, which is their brand equity.

We all “Google” every day; It’s a verb. It’s a core behavior we all do. Gmail also is one of the biggest email platforms in the world. Billions of people use Google Docs and Google Drive to manage their work and their lives. Billions of people use Android phones and so on. That’s a lot of human behavior to change, to get people to switch away from doing.

I spend time as a marketer trying to get people to change their behavior. It’s really hard. Think about it: If you’re trying to get somebody to do something they’ve never done before, that’s a difficult proposition. Whenever you’re trying to get people to change — and this is true in marketing generally &mdsash; that’s the biggest competitor you face.

Is inertia, getting people to take on a new behavior, getting them to take a new action, is really, really challenging. And getting people to stop using Google and start using something else, even though all they have to do is type in a different URL, is difficult. We just don’t see it happen very often. Note the difference in traffic that Google gets versus Bing, who’s been competing with them for 20 years.

Even on the antitrust side, I’m not convinced this is a long term threat to Google. It’s a, it’s a distraction. It’s definitely a problem. But I don’t know that the antitrust thing is going to be that big a deal in the long term.

Benedict Evans made a compelling argument in his most recent newsletter that it doesn’t matter if they lose. Apple probably isn’t going to move away from Google to use Bing or Perplexity. This is a quote from Apple’s SVP of Services, Eddie Cue, that Benedict Evans highlighted in his newsletter, where he said,

“There was no price that Microsoft could ever offer to make the switch because of Bing’s inferior quality and the associated business risks of making a change.”

This is the quote from Eddie Cue.

“I don’t believe there’s a price in the world that Microsoft could offer us. They offered us to give us Bing for free. They could give us the whole company.”

Cue continued,

“We’re not going to take something that isn’t as good and provide that to our customers. Our customers are too important to us. One of the reasons Apple’s been so successful is the fact that we treat the customer as the most important thing in the world, much more important than the revenue.

Again, that’s Eddie Cue, Apple’s SVP of Services, on why they might not switch, even if Microsoft no, excuse me, Google no longer pays them billions of dollars every year to use Google as their main search engine. Google is just a better product.

So it might not actually matter that much in terms of what’s happening there. And, just to put some further context around this, the judge in this case will not be proposing remedies in terms of what they might do to Google until August of next year. That’s 11 months from now before we figure out where their antitrust situation is going.

Additionally, their competitors aren’t winning. I mean, look at the numbers we just talked about from Bing or that we talked about from Perplexity; Google is still the dominant player. There’s data that comes from a variety of sources that show Google’s market share really hasn’t budged in months, so they’re doing pretty well. And they may continue to do pretty well for some time to come.

The question for me becomes, how much are you willing to bet? This, to me, is a 50/50 proposition. Maybe you think I’m wrong, and that the pros in favor of Google are much higher, and they’re the ones who are going to win. Or maybe you think, “wow, there’s a lot of problems that Google has to face and so they’re going to lose.”

But are you willing to put all of your eggs in Google’s basket and expect them to continue delivering the bulk of your traffic and revenues? Or are you going to move away from them entirely and hope for the best that it works out, that somebody else takes their place?

Or, are you ready to do what I tend to recommend, which is something like a core and explore strategy, where you test new ideas to drive traffic and revenue from other sources, while continuing to do some of what you do today?

As I noted, I wouldn’t bet too much on either scenario. I don’t think it’s a winning strategy for you to bet on either outcome right now. Instead, it’s about how you succeed no matter what happens to Google. It does mean diversifying your revenue and traffic. It does mean trying new channels and new ideas.

It does mean listening to your customers and building greater connection with those folks to drive more business from alternative sources like email or social. Most of all, it means placing a bet on your business, and on doing what’s right for you… so that no matter what happens with Google, its antitrust problems, or its competitors, you still win.

That’s the bet I would encourage you to make, because it’s the one that’s most likely to pay off in the long run.

Show Wrap-Up and Credits

Now, looking at the clock on the wall, we are out of time for this week.

I want to remind you again that you can find the show notes for this episode, as well as an archive of all past episodes, by going to timpeter.com/podcast. Again, that’s timpeter.com/podcast. Just look for episode 433.

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Show Outro

Finally, and I know I say this a lot, I want you to know how thrilled I am that you keep listening to what we do here. It means so much to me. You are the reason we do this show. You’re the reason that Thinks Out Loud happens every single week.

So please, keep your messages coming on LinkedIn. Keep hitting me up on Twitter, sending things via email. I love getting a chance to talk with you, to hear what’s going on in your world, and to learn how we can do a better job building on the types of information and insights and content and community that work for you and work for your business.

So with all that said, I hope you have a fantastic rest of your day, I hope you have a wonderful week ahead, and I will look forward to speaking with you here on Thinks Out Loud next time. Until then, please be well, be safe, and as always, take care, everybody.

Tim Peter is the founder and president of Tim Peter & Associates. You can learn more about our company's strategy and digital marketing consulting services here or about Tim here.

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