Artificial intelligence (AI) is a hot topic in the corporate world this year. Thanks to companies like OpenAI and its ChatGPT platform, natural language generative AI has matured to the point that businesses are able to successfully deploy it in their day-to-day operations.
ChatGPT could eventually have a profound impact on many industries, but it's targeting internet search engines at the moment. Alphabet's (NASDAQ: GOOGL)(NASDAQ: GOOG) Google Search is one such platform caught in the crosshairs. Some investors are concerns as it apparently was caught flat-footed by the rise of AI-powered chatbots. Microsoft's (NASDAQ: MSFT) partnership with OpenAI is of particular concern because its ChatGPT is being integrated into the Bing search engine. Various companies in numerous industries are racing to build AI plug-ins for Bing and ChatGPT, which could result in their users circumventing search engines like Google entirely.
It's still early in the development process, but these integrations could eventually turn out to be a big problem for Google (and Alphabet).
Image source: Google.
The way we search for information is about to change forever
OpenAI's ChatGPT has initiated a new chapter in the information age. With a natural language prompt from the user, the online chatbot has the ability to instantly retrieve specific information on nearly any topic. That's an improvement over traditional search engines like Google, where users rely on keywords to help them sift through a list of web results as they try to find what they're looking for.
For now, the search engine is OK. Google still has a 93% global market share in the internet search industry, so unless more people start using ChatGPT, its convenience potential for search improvement won't matter. But here's the thing: We might all be using chatbots like ChatGPT soon, and we won't have to visit them. They'll be embedded in many of the applications we use each day, which could make Google Search obsolete.
Microsoft is leading the charge in this area. ChatGPT has already been incorporated into Microsoft's Bing search engine. It's also being incorporated into the Microsoft 365 document suite, which includes programs like Word and Excel (through an AI assistant called Copilot).
If you're a student writing a paper or an employee preparing a presentation using Microsoft 365, this means you might never have to visit Google to conduct research or find the information you need; it will be readily accessible from the program and a mere prompt away.
Social media, travel, and even real estate will also be powered by chatbots
Earlier this year, Snap(NYSE: SNAP), the parent company of social media platform Snapchat, released an in-app chatbot called My AI. Users can call upon it for gift ideas, to help plan a trip, or even to book a restaurant table. The My AI feature is also powered by ChatGPT, so it also features much of its knowledge and many of its capabilities.
Similarly, real estate technology companies Redfin (NASDAQ: RDFN) and Zillow Group(NASDAQ: Z)(NASDAQ: ZG) have built their own plug-ins for ChatGPT. Users can describe their ideal house to the chatbot, and it will retrieve all appropriate listings for them. We've all spent hours browsing real estate listings online at one point or another, and these new tools are designed to put that time back into our pockets. Planning a holiday can be just as time-consuming, but thanks to new AI plug-ins developed by Expedia (NASDAQ: EXPE) and Tripadvisor (NASDAQ: TRIP), ChatGPT can help with bookings through a simple conversation. No Googling is required.
These chatbot-powered tools are embedded in the Snapchat, Redfin, Zillow, Expedia, and Tripadvisor applications. Again, they effectively circumvent the need to visit a search engine like Google.
Here's the kicker: In circumstances where ChatGPT provides a source, link, or reference for the information it delivers to the user, it links to search results generated by Bing, not Google, thanks to a new deal between Microsoft and OpenAI.
Google's advertising revenue is crucial to Alphabet
Google Search generates 57% of Alphabet's total revenue, so any measurable decline in traffic could reduce its attractiveness to advertisers, impacting Alphabet overall. Microsoft estimates digital advertising in the search industry is worth $200 billion per year, so each percentage point of market share could equal $2 billion in annual revenue.
Microsoft's intention is to take as much market share from Google as possible through its Bing-ChatGPT integration. Microsoft and OpenAI have agreed to work toward full interoperability, which means plug-ins that developers create for ChatGPT will also work with Bing, 365, Dynamics, and a host of other Microsoft platforms, and vice versa. That's an attractive proposition for many companies because they will only have to build one application to access billions of potential users in those ecosystems.
Of course, Google's Bard chatbot will probably be equally as powerful as ChatGPT eventually. But will companies want to integrate two services into their applications? That's a big unknown. Right now, ChatGPT is the popular choice, and that first-mover advantage could leave Google playing catch-up for years to come.
Plus, this challenge comes at a difficult time for Google because it's battling broader economic weakness that is hurting demand for advertising. In the recent first quarter (ended March 31), Google Search revenue grew by just 1.8% year over year, and revenue in other key segments like YouTube actually shrank.
The true impact of chatbots and AI on Google will take a few years to play out, but the pace with which these technologies are moving should at least leave investors with a healthy level of concern for the search giant's future.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, Redfin, Tripadvisor, and Zillow Group. The Motley Fool recommends the following options: short May 2023 $16 calls on Redfin. The Motley Fool has a disclosure policy.
