Search Wars
OpenAI’s launch of ChatGPT, its partnership with Microsoft, and the subsequent integration of GPT into Bing has upended the Search industry, long monopolised by Google. Google has replied with Bard. At stake: $200 billion of ad revenue. As Satya Nadella, CEO of Microsoft, put it (referencing Google) in an interview to The Verge after the Bing announcement, “Today was a day where we brought some more competition to search. Believe me, I’ve been at it for 20 years, and I’ve been waiting for it. But look, at the end of the day, they’re the 800-pound gorilla in this. That is what they are. And I hope that, with our innovation, they will definitely want to come out and show that they can dance.”
Jaspreet Bindra added context:
The First Search Wars started 14 years back, when Steve Ballmer and Microsoft launched the search engine Bing to take on Google. Google had annihilated other search engines like Yahoo, Lycos, and Excite to become a virtual monopoly, through a combination of superior search results and a profit-spinning business model.
Much like the First World War, the Bing-Google search war was a grinding battle fought in the trenches of technology. Google emerged victorious, still controlling more than 90 per cent of the search market, besides overtaking Microsoft in revenues and profitability. Microsoft vowed to soldier on, and Bing still exists, though as a very poor second alternative. Therefore, the undisguised glee in Nadella’s tone when he declared the Second Search Wars.
… Search advertising is extremely profitable for Google, and Microsoft now wants to attack it squarely. Nadella said as much in an interview with Financial Times: “From now on, the [gross margin] of search is going to drop forever…There is such margin in search, which for us is incremental. For Google it’s not, they have to defend it all.” It is this “asymmetric” competition which is enabling Microsoft’s jujutsu move. As Microsoft drives overall search margins down, it hits Google asymmetrically. That potentially impacts Googles investments in other businesses, including cloud, where it is locked in a ferocious battle with Microsoft for the number two position. Google has been subsidising its cloud growth with its search profits, and that tap could dry up. Meanwhile, Microsoft keeps making its money through its software and gaming businesses, offsetting its minuscule search losses. This is the ‘3D chess game’ that Microsoft is playing, a genius move in strategy.
The Economist wrote: “[N]othing lasts for ever, particularly in technology. Just ask IBM, which once ruled business computing, or Nokia, once the leader in mobile phones. Both were dethroned because they fumbled big technological transitions. Now tech firms are salivating over an innovation that might herald a similar shift—and a similar opportunity. Chatbots powered by artificial intelligence (AI) let users gather information via typed conversations. Leading the field is ChatGPT, made by OpenAI, a startup… As in the 1990s, when search engines first appeared, a hugely valuable prize—to become the front door to the internet—may once again be up for grabs.”
What is happening in Search has happened many times in the past – new technologies and innovations have upended incumbents, resetting industries. In this series, I will look back at some other examples and peer into the future and ask if that could happen to email service providers (ESPs) and in the adtech industry.
