Google did $282 Billion in revenue last year, yet their empire could be on the verge of collapse.
Here's the story of how @Microsoft is using AI to take down the king of search 🧵
Before we proceed any further, it's important to understand how Google makes money...
While their revenue lines have diversified somewhat over the years, the vast majority of revenue still comes from search ads.
They raked in $40B in search ad revenue last Q3 alone 🤯
Aside from generating tons of revenue, the search ads model is key because it has extremely strong margins.
Google is able to use the profits from its search business to invest in moonshot business lines like self-driving cars, which currently loses a lot of $.
Due to a variety of factors such as: proprietary algorithms, search infrastructure and brand, Google has been able to capture 90%+ of the search engine market share.
So what would it take to disrupt this paradigm?
A fundamental shift in the way people leverage search...
Microsoft is betting that AI will be that technology that fundamentally changes the way that people use search.
And to show how serious they are about this bet, they just announced that they are investing $10 BILLION in @OpenAI to lead the charge!
So how will AI change search?
Well tools like ChatGPT & DALL·E could help make the online search experience more effective for users by:
1) Offering more detailed responses
2) Generating eye-catching images
Let's consider some examples...
Imagine a YouTube creator wants to have an exciting thumbnail image for their latest video.
Today they could go to Google -> Images, however many of those images will be subject to copyright.
So what's the workaround?
Have DALL·E generate a brand new image from scratch.
Or take a student that needs to write an essay about the American Revolution.
Instead of asking Google for different facts and piecing them together, they can just have ChatGPT write an ENTIRE essay from scratch that is original and factually correct.
If Bing were to integrate these AI-driven features, it would represent a substantial improvement over the existing Google search experience.
And if Google were to begin bleeding market share, it could cause their entire empire to come crashing down
So is this the end of Google?
Well, not so fast.
It's important to remember the 2 most crucial things to succeed in AI:
1) Proprietary data sets
2) Large amounts of compute power
Google already has both of these in abundance.
Which means they may already have their own AI offering in the works.
There's also the fact that Microsoft needs to find a way to make up the $10 Billion investment.
As part of the deal they would receive 75% of OpenAI's profits until it recoups the initial investment.
And own 49% of the company afterwards...
However, OpenAI doesn't currently generate a lot of revenue.
They only did around $35 million in revenue in 2022.
And despite claims they will reach $1 billion in revenue in 2024, it's not exactly clear how they will get there.
Regardless of the current state of OpenAI, it would be unwise to bet against Satya and Microsoft.
Satya has repeatedly made big bets on emerging business lines that have paid off.
These include acquisitions like @linkedin, @Minecraft and @github...
The AI battles are just beginning and when they are done the entire digital economy may look completely different.
Let's see how Google responds to this initial strike by Microsoft...
The future of their company may depend on it.