The previous big news was the emergence of an application which can answer almost all questions under the sun (and space if need be). And the last big news about this application was that Microsoft had invested (rather heavily) into it.
Unless one is a bit detached from the internet (or undergoing a digital detox), the application I am mentioning is a chatbot called ChatGPT. Created by an artificial intelligence (AI) research laboratory OpenAI, it was launched in November 2022, and immediately it took the world by storm in its ability to reply to questions in detail and could pass it off for essay answers in school assignments.
Things got serious when news of Microsoft investing billions into ChatGPT in late January 2023, and within a couple of weeks, they announced the new Bing browser powered by ChatGPT AI. Suddenly, the definition of searching the internet had taken a whole new meaning; no longer searches produce just sites and suggestions (which a user may find it more "tedious" in needing additional manual intervention of clicking the mouse), but it could also give detailed results, answers and more "suggestive" suggestions.
A race was triggered; Google, long being the undisputed champion in (and getting the most money from) its search engine technology, suddenly felt threatened, and a few days ago announced the launch of Bard as a counter, though it got hiccuped with displaying a not-so-factual information with regards to the James Webb telescope. Across the Pacific Ocean, China's Baidu had also said it would launch their own ChatGPT-ish project called Ernie by around March 2023. In other words, ChatGPT or other iterations of it would revolutionise how the internet would be used and structured.
To quote a famous phrase seen in many internet forums:
"The internet is serious business." – Unknown
Alphabet, the parent of Google, dropped almost 9% during the course of the past five days, clearly affected by the goings-on described above. Talk of Google going to be dethroned by Bing in the upcoming search engine wars exacerbated the share price situation. Let us now look at three main points on whether Alphabet is still, in my humble opinion, a long term play.
Point #1: Google Is Still Dominant In The Search Engine And Internet Usage Space
In 2022, Google’s global market share of search engines for desktop and mobile were 84.7% and 95.6% respectively, compared to second-placed Bing’s 8.6% and 0.6% respectively1. It is due to this dominance that allowed the word “googling” to become synonymous with the phrase “internet search” (and GIYF: Google Is Your Friend or LMGTFY: Let Me Google That For You).
Do not forget that Google still has other services around which are dominant, such as YouTube and Google Maps, and they earn fees and advertising revenues through them.
Point #2: The Competition Is Still There
Microsoft’s integration of ChatGPT and the deemed imperfections of Bard were, in my view, nothing but “flash in the pan” headlines. Honestly, having AI in search engines is nothing new, just that the investing and trading public were suddenly inundated with a surge of such news, good and bad, for both ends. Google’s quick response, albeit seen as reactive, demonstrated that they are not going to take this lying down. Time is needed to take down a giant, but if the giant is continuously improving itself then the chance of an overnight failure is super-duper rare.
During an interview with CNBC2, Microsoft CEO Satya Nadella stated that the largest software business is search, and that gave them the drive to go for this area. He even acknowledged that Google “…makes more money on Windows than all of Microsoft”. So an usurping moment is still very far away.
Point #3: The New Norm Going Forward
When the iPhone was first unveiled in 2007, it was seen as revolutionary, with the removal of mobile keyboards and capacitive touchscreens seen as cool by users. Today this type of mobile device is in almost everyone’s hands. Search AI engines such as ChatGPT, Bard and Ernie will become the new norm in the future once they are integrated with their respective search portals and/or browsers, and adopted for use by the general masses.
Going back to the dominance and user preferences, Google would still be in the game. The main risk of Google (and big advantage to Microsoft) would be a defection of users to the other side either via user experience and/or (the bigger one) better integration of applications and services across the entire Microsoft ecosystem, where they have an almost monopolistic hold in the corporate world.
To say about Google (and Alphabet) getting doomed because of this ChatGPT is a result of recency bias, which definitely is a no-no when looking at things from an investor’s perspective, i.e. multi-faceted and long term. The current price weakness presented an opportunity for me to consider adding in more Alphabet.
The Bedokian is vested in Alphabet directly and Microsoft indirectly via a S&P 500 exchange traded fund.
1 – Fleck, Anna. Google’s Search Dominance. Statista. 9 Feb 2023. https://www.statista.com/chart/29267/market-share-of-the-worlds-largest-search-engines/ (accessed 11 Feb 2023)
2 – First on CNBC: CNBC Transcript: Microsoft CEO Satya Nadella Speaks with CNBC’s Jon Fortt on “Power Lunch” Today. CNBC. 7 Feb 2023. https://www.cnbc.com/2023/02/07/first-on-cnbc-cnbc-transcript-microsoft-ceo-satya-nadella-speaks-with-cnbcs-jon-fortt-on-power-lunch-today.html (accessed 11 Feb 2023)