The search landscape is undergoing a paradigm shift with the emergence of Generative AI (Gen AI). Google, the long-reigning champion with over 93% market share, faces challenges from new players like OpenAI and Perplexity, as well as established rivals like Microsoft (MSFT). This article explores the two key factors that will determine the victor in this new era of search: Search Capabilities and Distribution channels.
Search Capabilities
Search Capability hinges on two main components:
- Indexing: This refers to the process of identifying and cataloging web pages for efficient retrieval based on user queries. In the age of AI-powered search, indexing remains a crucial advantage. It’s simply too time-consuming and expensive to analyze every web document for every query. Imagine a user searching for information on diabetes. Google and Microsoft (MSFT) have spent years meticulously indexing the web. This allows them to leverage their vast data to pre-select the most relevant pages for the next step, which is analysis by their Large Language Models (LLMs). This translates to more focused and likely more accurate search results for the user. Interestingly, MSFT even licenses its indexing data to other search providers. This might seem counterintuitive, but it increases competition for Google (GOOGL) as competitors gain access to a valuable resource. Perplexity exemplifies this strategy, leveraging MSFT’s indexing data alongside an open-source LLM model to deliver AI-powered search results.
- LLMs (Large Language Models): Following indexing, the subsequent stage in processing a search query involves utilizing Language Models (LLMs) to deliver an answer resembling human-like responses. These AI models play a crucial role in interpreting user queries and generating relevant responses. While Google may not hold a decisive edge in LLMs at present, continuous refinement will undoubtedly lead to the development of powerful proprietary models by Google. OpenAI is likely to do the same, potentially minimizing the technological gap. In the near to mid-term, Google and MSFT’s combined strengths in indexing and OpenAI’s capabilities position them favorably in search from a product perspective. Hence, the battleground now shifts to distribution capabilities.
Distribution Channels: Reaching the Users
Distribution plays a vital role in determining a search engine’s reach and user base. Here’s a breakdown of two key channels:
- Mobile: Google Search enjoys a dominant position on Android devices, often being the default search option. Even in regions like the EU, where users choose their preferred search engine during phone setup, Google’s market share remains remarkably stable. This suggests user preference for Google’s brand persists even when presented with alternatives.
- Desktop: Google’s dominance extends to desktop browsers, with Chrome holding a near-monopoly. Challengers like Microsoft’s Edge with its recent Gen AI integration haven’t been able to make significant inroads.
The Verdict: A Balancing Act
In terms of product quality, both MSFT and Google are likely to be on par, offering little advantage over each other. However, Google maintains a distinct edge in distribution. Therefore, while Google may not necessarily lose the search war outright, the extent of market share erosion remains a critical concern. Even a minor decline in Google’s market share might be extrapolated by the market, potentially leading to a substantial stock price drop.