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I will admit this isn't an effortpost:
As is common knowledge and more deeply discussed elsewhere in this very comment section (e.g. https://www.themotte.org/post/349/culture-war-roundup-for-the-week/62270?context=8#context), Google got "scooped" by ChatGPT not because they were beat on the technology side, but because they were beat on the productization side. Some are comparing this to Xerox PARC, where Xerox invented or incubated many elements of modern computer technology -- the GUI, the mouse, etc. -- but, being blind to their actual utility, got "scooped" by Apple and others and subsequently lost out on trillions of dollars of market value.
What's deeply, deeply hilarious to me is: during this entire time, Google management were so busy posturing, and their internal A.I. safety teams were so busy noisily complaining sexism / racism / phobias of various sorts (not so much human extinction), and they developed such a reputation for being a place to coast, that despite 130,000 elite-educated, overpaid people sitting around ostensibly unleash their brilliance, they're now in a position where Microsoft has a puncher's chance (realistically, maybe 5 - 10%) of catching up and even surpassing Google's decades-long search dominance. Even better, competing with Microsoft now means that Google might have to cannibalize a $100B / yr line of business, whereas Microsoft cannibalizing Bing means it sacrifices maybe a ham sandwich / year line of business.
DEI nonsense probably had something to do with this, but mostly it looks like plain old "innovator's dilemma" stuff. Fear of self-disruption.
Google makes most of its money from search. Search has a property that makes it an especially valuable segment of the ad market — showing an ad for X to someone specifically searching for X right now (that is, who has purchase intent) is many times more effective than showing an ad to someone who some algorithm guesses might be the sort of person who might have an interest in X (e.g. what Facebook mostly has to settle for).
Conversational AI potentially pulls users away from search, and it's not clear it really has a direct equivalent of that property. Sure, people might use conversational AI to decide what products to buy, and it should be able to detect purchase intent, but exactly what do you do with that, and how effective is it?
It's not hard to generate high-level ideas here, but none are proven. Search and conversation have different semantics. User expectations will differ. "Let advertisers pay to have the AI recommend their products over others," for instance, might not be tolerated by users, or might perform worse than search ads do for some reason. I don't know. Nobody does. Product-market fit is non-trivial (the product here being the ads).
On top of this, LLMs require a lot more compute per interaction than search.
So in pushing conversational AI, Google would have been risking a proven, massively profitable product in order bring something to market that might make less money and cost more to run.
Now, this was probably the right choice. You usually should self-disrupt, because of exactly what's happened here — failing to do so won't actually keep the disruptive product off the market, it'll just let someone else get there first. But it's really, really hard in most corporate cultures to actually pull the trigger on this.
Fortunately for Google, they've split the difference here. While they didn't ship a conversational AI product, they did develop the tech, so they can ship a product fairly quickly. They now have to fend off competition that might not even exist if they'd shipped 18 months ago, but they're in a fairly strong position to do so. Assuming, of course, the same incentives don't also cause them to slow-walk every iterative improvement in this category.
They probably will have "let advertisers pay to have AI recommend their products" and they'll inform users of that - in the small print in a EULA which nobody bothers to read. After all, if you're expecting a Samsung product to come up somewhere on the list of "recommend me a new tablet", are you really going to notice if Samsung is number one or two on the list instead of number eight or ten?
Those responses would qualify as native ads, for which FTC guidelines require "clear and conspicuous disclosures," that must be "as close as possible to the native ads to which they relate."
So users are going be aware the recommendations are skewed. Unlike with search, where each result is discrete and you can easily tell which are ads and ignore them, bias embedded in a conversational narrative won't be so easy to filter out, so people might find this more objectionable.
Also, LLMs sometimes just make stuff up. This is tolerable, if far from ideal, in a consumer information retrieval product. But if you have your LLM produce something that's legally considered an ad, anything it makes up now constitutes false and misleading advertising, and is legally actionable.
The safer approach is to show relevant AdWords-like ads, written by humans. Stick them into the conversational stream but make them visually distinct from conversational responses and clearly label them as ads. The issue with this, however, is that these are now a lot more like display ads than search ads, which implies worse performance.
Sorry to derail the thread but you keep talking about how Gen Z uses tiktok and reels and I'm still trying to figure it out. You said in another comment that (paraphrasing, not an actual quote) "when Gen Z wants to find a Mexican restaurant, they go to instagram and type in Mexican Restaurant [city name] and find what they're looking for." The other day I tried this out for looking for a barber shop in the city I'm in (a world class city which has hundreds of barber shops at least) and instagram didn't give me a single barber shop result in the city I'm in. I tried a handful of phrases and different types of searches (tags, accounts, whatever instagram let me search with.) I don't know if your claim was an exaggeration or a bad example or if I just misunderstood/misremembered what you said or what but I felt like a total boomer and immediately gave up and switched back to google maps like I've always done.
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Why don’t you think they killed AI because it threatened their profits. Their is no guarantee chatbots will generate the same profit as search which you could load with ads.
This looks like a classic case of a low end new entry to a market. A technology developed that would be cheaper and better. The existing dominating company couldn’t enter the market because establishing the lower end market would kill their cash cow.
I think it’s quite possible these chatbots end search and no one gets to dump ads on you.
More likely just auto-generation of current click-farm "review" sites, when ten different options are given facially valid reviews... with affiliate links to each one. No reason not to play the field on this one.
That's what I mean -- if Google can autogenerate this sort of thing, what's to stop them from just putting it at the top of the search results (customized on the fly based on all of their personal data) and reaping the rewards from whatever product the
suckeruser ends up buying? Advertisers love "pay per sale".More options
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Hmm..interesting. Considering a possibility in which the alternatives to search is better but less profitable. How does Google handle this. One way is to buy out the competitors. Usually the superior technology ends up gaining so much use that is becomes more profitable anyway.
My theory nothing more than basic mba tech strategy.
But this looks like a classic low end market entry to me. The incumbent looks stupid and slow but realistically they had bad incentives and most companies make mistakes when faced will killing 50% of their profits.
AI is currently more expensive but margins are so incredibly high in search that doesn’t matter as they can still enter the market and offer a superior product without the ads.
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That is true to an extent, but there's also a unique weakness: you can waste money on showing ads to people who were already searching for your thing. I don't have a link to the article offhand, but there was a researcher who worked with eBay and found that most of their ad clicks came from people who were already planning to go to eBay (in other words, they were wasting money on their search ads).
Google allows advertisers to use competitors' trademarks as keywords. So you have to waste money showing ads to people who were already searching for your thing if you don't want your competitors to have an opportunity to divert them elsewhere.
Yeah but the vast majority of people searching for your thing have actual reasons to be going to your thing and the competitors aren't necessarily direct replacements.
So much of modern marketing theory was essentially invented for supermarket retail places and hasn't progressed with the times whatsoever.
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Ad people know that and they place the ads anyway.
Well yeah. What are they going to do, admit that their specialty actually doesn't work?
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As somebody who works in digital advertising.
If you don't place the ads there, an external ad agency/contractor will say you're doing an awful job and tout their far better numbers (which they're getting via selling to the already-converted). It's a race to the bottom and digital advertising as a space is a horrific bed of fraud and awfulness.
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One's the flip side of another. If my Ford dealership is at Exit 8 of the highway, I might well want to buy the billboard leading up to it to avoid the Chevy dealership at Exit 9 buying it to divert people who are looking for Fords away. The Chevy dealership here is "paying to attract new customers", and the Ford dealership is paying to prevent them.
Key thing is these are negative sum games.
As oppose to beneficial marketing where you are making some aware of your product that has a positive consumer surplus to trade with you but didn’t know beforehand they wanted to trade with you.
This is one fair critique of capitalism is a number of areas that just look like negative sum games. HFT being probably another area that’s just negative sum
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not just search ads but also youtube and 3rd party publisher ads. I think search is only 50% of Google's income.
Search looks to be 58% of Google's total revenue, 72% of advertising revenue.
I'd bet search ads also have higher margins than YouTube ads or the non-ad revenue streams.
That understates it a bit; most of the remainder of the advertising revenue comes from partners on Google's advertising platforms (e.g. AdSense). It's likely that replacing search with an LLM will also cannibalize a lot of that, as people engage more with the LLM and less with partner websites (and, to a lesser extent, other platforms). Which sucks for the partners as much as it does for Google.
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