A demo cost Google’s shareholders $100bn dollars last week. Why?
Google has dominated search and online advertising for the last twenty years. And yet, it seems badly shaken by Microsoft’s moves to include a ChatGPT-like model in Bing search results.
Why is this a threat to Google?
1️⃣ Advertising: Google’s revenues are driven by the advertisements it displays next to search results. The integration of language models allows users to get answers – removing the need to navigate to websites or view ads for a significant subset of queries.
2️⃣ Capital Expenditure: Search queries on Google cost around $0.01 (see link in the comments for some analysis). Integrating an LLM like ChatGPT *could* cost an additional 4/10th of a cent per query since the costs of training and inference are high. Even with optimization, integrating LLMs into Google search will increase costs in running search queries. According to some estimates, this directly impacts the bottom line to almost $40bn.
3️⃣ Microsoft’s Position: Bing (and, more broadly, search) represents a small portion of Microsoft’s total revenues. Microsoft can afford to make search expensive and disrupt Google’s near-monopoly. Indeed Satya Nadella, in his interviews last week, said as much (see comments).
4️⃣ Google’s Cautious AI Strategy: Google remains a pioneer in AI research. After all, the “T” in GPT stands for Transformer – a type of ML model created at Google! Google’s strategy has to sprinkle AI in products such as Assistant, Gmail, Google Docs, etc. While they probably have sophisticated LLMs (see LaMDA, for example) on hand, Google seems to have held off releasing an AI-first product to avoid disrupting their search monopoly.
5️⃣ Curse of the demo: Google’s AI presentation seemed rushed and a clear reaction to Microsoft’s moves. LLMs are known to generate inaccurate results, but they didn’t catch a seemingly obvious error made by their BARD LLM in a recorded video. This further reinforced the market sentiment that Google seems to have lost its way.
References and Further Reading
- A detailed (and somewhat speculative) breakdown of the additional costs of integrating LLMs to search: https://www.semianalysis.com/p/the-inference-cost-of-search-disruption
- Further analysis by Azeem Azhar at Exponential View about Google & LLMs: https://www.exponentialview.co/p/ev-409
- VC and Journalist Om Malik takes a critical view of Sundar Pichai’s strategy: https://om.co/2023/02/08/does-google-need-a-new-ceo/
- Last week’s All In Podcast had a detailed discussion of the Microsoft vs Google strategy. Relevant material about 33 mins into the podcast: https://www.youtube.com/watch?v=PVgBWV2bvLs&t=3466s