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Wednesday, Feb. 8, 2023
Microsoft is coming for Google's biggest moneymaker
Microsoft (MSFT) on Tuesday unveiled what could be the biggest threat to Google’s (GOOG, GOOGL) search empire in years with the release of its new Bing search engine powered by OpenAI’s ChatGPT technology.
"It's a new day in search. It's a new paradigm for search," Microsoft CEO Satya Nadella said during an unveiling event held at Microsoft’s Redmond, Washington campus. "Rapid innovation is going to come. A race starts today in terms of what you can expect. We are going to move fast."
But Google controls 93% of the marketplace compared to Bing’s 3%. So why bother starting a war? Simple: Microsoft wants a larger slice of the $570 billion digital advertising market. In 2022, the company saw $18 billion in ad revenue through search and LinkedIn. Google, meanwhile, pulled in $59 billion in Q4 alone.
To that end, Microsoft has outfitted Bing with generative AI powered by a more advanced version of OpenAI’s popular ChatGPT chat bot. One example of how this comes into practical use is by searching for whether a new LG C2 TV will fit into a 2007 Ford Mustang, something I'm particularly interested in.
An example of whether an LG C2 TV can fit into a 2007 Mustang. (Image: Microsoft) ·(Microsoft)
With traditional search, you’ll get a list of websites or Reddit links related to the topic. But Bing will now pull out the relevant information including the dimensions of the TV and your trunk space to let you know if your new set will make it back home with you in one piece.
“This is a pretty significant paradigm shift in the way people look for and interact with information,” explained Gartner Analyst Ed Anderson. “Microsoft is the first one to take the step.”
But Google isn’t sitting idly by while Microsoft steals the show, it is already pepping its own competing product called Bard. And getting people to abandon Google will be a Herculean task.
Microsoft is making search a contest again
Google is synonymous with search. But the way Nadella tells it, the market has been more or less stagnant for the last 20 years. That’s where the new Bing comes in. By leveraging OpenAI, which Microsoft is investing billions of dollars in over a number of years, the company hopes to overpower Google.
While Bing still provides the familiar list of links you’d expect from a search engine on the left side of the screen, the right side now has OpenAI-powered generative AI answers to your queries.
Searching for things to do in Japan? You’ll see a list of links for sites highlighting things to do on the left side and a conversational-style response from the AI-powered chat agent on the right, pointing out different events, locations, festivals, and more that you might want to check out.
It’s truly an impressive feature to see in person, and will certainly make searching online far easier than having to sort through a litany of sites or run through dozens of articles. And for Microsoft, that could be the secret ingredient to taking down Google.
The new version of Bing featuring OpenAI's AI capabilities. (Image: Microsoft) ·(Microsoft)
“If what Microsoft has announced today reshapes what customers expect, and Microsoft is best able to deliver that, this will be a huge win for them,” Anderson explained. “What Microsoft has done here, I think puts them back in the game. I mean, they certainly weren't going to take any share with the existing offers.”
Microsoft doesn’t seem to have any misconceptions about its position in the market either. During a call with analysts, CFO Amy Hood pointed out that just 1 point of search advertising market share is worth $2 billion in annual revenue.
Microsoft meanwhile says its two year 2-year compound annual growth rate for search and news advertising revenue ex-TAC clocked in at 24%. And with the industry’s 3-year compound annual growth rate of 18%, the company sees space to grow.
Getting there won’t be easy
While Microsoft might have a first mover advantage by bringing generative AI to its search engine, there’s no guarantee it’ll get consumers to switch to Bing en masse.
“We've seen incredibly disruptive technologies from ARM and AMD, and Intel still sits at 75 plus percent of the server market,” Futurum Analyst Daniel Newman explained. “We're not going to wake up and all of a sudden an enhanced ChatGPT is embedded in Bing, and everybody's just gonna stop using Google.”
Google also has two distinct advantages over Microsoft outside of its ubiquity. Its Chrome web browser, which uses Google as its search engine by default, controls 65% of the global browser market, according to StatCounter. Microsoft’s Edge has just 4.5%.
What’s more, Google’s Android operating system controls a whopping 71% of the global smartphone market. And Google’s Chrome comes installed on the vast majority of those devices. As for Apple, its Safari browser, which comes built into all of its devices, uses Google search by default. Apple (AAPL) also uses Google as the default search engine for its Spotlight search as well.
Google CEO Sundar Pichai. (Image: Reuters/Stephen Lam) ·(Stephen Lam / reuters)
We’re still waiting to see what a mobile version of the new Bing looks like, but Microsoft says it's coming.
Then there’s the lurking threat that Google is preparing its own ChatGPT-style interface. On Monday, the day before Microsoft’s announcement, Alphabet CEO Sundar Pichai announced that his company is working on a generative conversational AI called Bard that will be coming to Google search.
The company also has its own AI lab called DeepMind, which, like OpenAI, is considered one of the best such organizations in the world.
Still, Microsoft is making a compelling case for its new browser and the possibilities it holds. Now we’ll just have to see if it pays off.
“For the first time, people could look at this and say, ‘This is a better mousetrap, I'm going to use this’,” said Newman.
