Can AI Chatbots be a threat to Google? (NASDAQ:GOOG)

“Artificial intelligence chatbots and search engines are two technological tools that have become increasingly popular in recent years. Both of these tools have their own strengths and weaknesses, and they are often used for different purposes. In this article, we will compare and contrast AI chatbots and search engines, highlighting their key differences and discussing the situations in which each is most useful. We will also explore the potential benefits and drawbacks of using these technologies and consider how they may evolve in the future.”

This introduction was written by Open AI Chat within one second under the instruction, “Write an introduction for an article about AI Chatbots versus Search engines”. Open AI’s ChatGPT was released on the 30th of November 2022 and is an AI Model optimizing Language Models for Dialogue. The model can answer follow-up questions, admit mistakes, challenge incorrect premises, and reject inappropriate requests.

I am a shareholder in Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) with a 6% weighting in my portfolio, so after discovering this chatbot, I got a little frightened. For this reason, I’m looking to dig a little deeper and decide if this is a real threat to Google, Alphabet’s cash cow.

The concept of counter-positioning

Counter positioning is a concept for new incumbents in a market to gain share by offering a better or differentiated value proposition than the big players. Let’s see what Open AI has to say about it.

Counter positioning is a marketing strategy where a company or product positions itself against a competing brand or product. This is done in order to differentiate the brand or product from its competitors and highlight its unique features and benefits. Counter positioning can be used to create a clear, distinct image for a brand or product and help it stand out in a crowded market. It involves identifying the key differences between the brand or product and its competitors, and highlighting these differences in marketing campaigns and messaging.

Counter-positioning is often interesting because companies can’t attack the entrants. After all, it would cannibalize their product. A great example has been E-Commerce over the last decades. Amazon (AMZN) offered customers an arguably better value proposition than retail brick-and-mortar stores like Walmart (WMT). Still, Walmart couldn’t just compete in E-Commerce because it would keep customers away from its large stores where the profits are made. Eventually, most retailers gave in and started adopting E-Commerce, but only after Amazon built its empire.

Google Search is Alphabet’s cash cow generating hundreds of billions in revenues and tens of billions in profits each year. Could AI Chatbots be counter-positioned against Google Search? Let’s see what Open AI says about that:

As a large language model trained by Open AI, I don’t have the ability to engage in marketing strategies or compete with other companies or products. My purpose is to assist users by providing information and answering questions to the best of my ability based on the data that I have been trained on. I am not a product or a company, and I don’t have the ability to engage in commercial activities or compete with other products or services.

That sounds like something a future competitor would say. By “providing information and answering questions” users ask Open AI, they automatically take traffic away from Google and thus link clicks and advertising revenues.

The difference between Search and Chatbot

Open AI Chat is a conversational AI assistant that responds to user inputs in a dialog. Users can ask follow-up questions and create a conversation. Open AI Chat is not connected to the internet. It only operates based on the data fed to the model in its training and the incremental training it receives from users interacting with it.

Search Engines, on the other hand, are designed to quickly retrieve results from the internet based on the user’s history and page ranking.

Both approaches have a different experience for users:

• Conversational AI Assistants will prepare a result tailored to your specific question trying to answer it in as much detail as possible.
• Search Engines will show you what they deem to be the most relevant links to pages that answer your questions.

Verdict

At the moment, Google Search is the undisputed number one source of gathering information on the internet. Still, conversational AI assistants have an opportunity to capture some of the market share, in my opinion. After using Open AI Chat, I can say that getting a general idea or a summary of something is much more comfortable. It has some significant downsides though:

• Open AI Chat prepares a message for you based on its knowledge base but does not offer any links or sources to this information. This leaves the possibility of a misunderstanding and resulting false information from the AI and also leaves it open to developing biases.
• Open AI Chat is not connected to the internet and thus is useless for searching for news or recent events.
• Furthermore, you cannot transact on the platform, even looking for a flight is impossible.
• Open AI Chat only offers textual content and thus cannot display social media, pictures or video content.

Most of the content Open AI Chat is good at creating is not attractive to advertisers. News, price comparison sites and social media are attractive advertising markets that aren’t in the scope of Open AI Chat. Of course, future conversational AI assistants could offer services in those fields, but at the moment, if market share is taken from Google, I’d imagine it to be relatively low Cost-per-Click queries.

However, Google investors have to be mindful of this development because I believe that conversational AI assistants are counter-positioned against Google Search: If Google develops its own conversational AI assistant, it cannibalizes potential queries for Google Search while offering a lower value to advertisers. Right now, it is not an issue, but only time will tell if Google can keep its Search Monopoly.