Google's hero era is sunsetting. It's now just IBM in waiting...
Google's hero era is sunsetting. It's now just IBM in waiting...
Latest results show a 15 per cent growth and a boom in cloud, but Google's now old, fat, tired, and overly reliant on its rivals for its future...
At a meeting of high-powered media execs in New York last week, I described Google as yesterday’s hero.
One challenged me: “Google still makes an absolute fortune,” he said. “They do,” I agreed, “but so does IBM. Google is now just IBM in waiting.”
There were lots of senior people on that call, so there was no opportunity to explain in detail at the time. Now’s exactly the right time, as Google reports its quarterly results.
Just before we dive in, hi to new subs from Apple, The Guardian, marketing agency Ginger May, lawyers Consumer Voice in the UK, Indian VC Bharathvarsha, among others.
And the WME Talent Agency in Beverly Hills, California. The starfinders who represent Denzel Washington, Charlize Theron, Matt Damon, Gal Gadot, Adele, Drake, Rhiannon, Bruno Mars, Quentin Tarantino, LeBron James, and more. I’m right here guys, I knew you’d reach out :)
And thanks to this week’s sponsor, Avid Collective.
Let’s go…
For the past 20 or so years, Google has been the spearhead of tech innovation. It has been everyone’s mate and go to, but that era is sunsetting.
Today, the torchbearer for the future is OpenAI and ChatGPT, not Google.
And Google’s attempts to close the gap, by crowbarring AI into its hero search product, with AI Overviews, has been a cluster f***.
This has collided with Google’s regulatory woes, where it has been exposed by courts as an arrogant monopoly, happy to pay rivals billions to keep out of its path.
Google has become what it once derided - a bloated monopoly which has lost momentum to protect its cash cow search and ads, which make up 75 per cent of its revenue.
Worse, its share of the search ad market in the US is projected to dip below 50 per cent for the first time in a decade, according to Emarketer.
Yeah yeah yeah, plenty will disagree with me, but the markets bear this out.
While Google’s stock has risen 18 per cent over the year, it’s fallen over the past three months. It’s the only Big Tech stock to do so, meaning it stands alone.
That’s why Google’s IBM in waiting.
What’s poisoned its pool?
Well, its scale has made it slower than rivals to leap into AI. AI meant cannibalising its existing ad business. Scary.
Google has been laughed at for dropping the ball on AI. Criticism is something else that Googlers find hard to take after so many years in the lead.
It’s now throwing huge amounts at its AI efforts to try to catch up, but some are already whispering that OpenAI already has an uncatchable lead.
And if AI is going to be the driver of consumer behaviour, digital revenue and tech valuations, then Microsoft’s OpenAI investment looks smarter by the day.
Want a clue? Apple looked at Google Gemini to run on its iPhones. There was even a brief announcement, then it revealed it had pivoted to a deal with… OpenAI.
The glorious Google of yesteryear just didn’t lose these deals. Now it does.
That’s why Google’s IBM in waiting.
Google has crashed into reality. In Canada a week ago, someone asked me what this means. I said it means that Google has won at capitalism.
It grew to be so large it had a 90 per cent market share, rivals declared search “the largest no-go in Silicon Valley” and it hoovered $307 billion a year unchallenged.
It literally played capitalism and won. And 20 years after being the biggest, the best, the richest and impossible to stop, it fell to regulators to end it.
Antitrust in Google’s case should be seen as a prize, not a penalty.
Now, two courts have ruled it has monopolies over search and the Android app store, and the world’s waiting for a ruling on its ad tech, which it will likely lose too.
Google is appealing and has said it expects those “to take up many years”, but the US Government is already demanding major changes.
Forcing it to stop paying rivals for search default positions.
Enabling publishers to opt out of content being used for AI training.
Making Google share its massive monopoly on ad supply with rivals.
And publishers are launching $100 billion class action suits across the world, as I revealed earlier this week. I vote Lisa :)
That’s why Google’s IBM in waiting.
I then revealed AI Overviews, and explained how it would play a big part in that. Google lied and said it was a trial. It was rolled out to another 100 countries this week.
But even with its unpopular Hail Mary underway, and search quality collapsing, it’s still growing its ad revenue slower than both Meta and Amazon.
Google ad growth slowed to 12 per cent from 14 per cent, and massive spending on the US election is masking a sharper slowdown.
The Information reported: “The big worry - that artificial intelligence chatbots will pull consumers away from search - hasn’t yet manifested itself in the company’s results.
“And Google executives did their best to reassure investors they’re on top of the issue, repeatedly mentioning new AI-powered search formats, such as circle to search, which lets people search for a product by circling an image of it in a photograph.
“AI really supercharges search,” said Google’s business chief Philipp Schindler - a comment the US Government is sure to cite as it wants to restrain Google from using AI to strengthen its dominance in search.”
Yep. That grinding noise you can hear is Google scraping the bottom of the barrel.
That’s why Google’s IBM in waiting.
Even YouTube, Alphabet’s video shining light, is now coming under pressure from Amazon, which now has billion dollar deals for ads on Prime, and Netflix’s new ad tier.
Ummm, IBM in waiting.
Google’s investors are voracious, and even though Alphabet’s overall top-line growth was a strong 15 per cent, it’s not enough.
Because the coin-operated billionaires who fund Big Tech only bet on big leaps.
Today, $1 invested in Google becomes $1.15, and that’s not enough.
And Google will never again be able to compete with the 500x growth of the next big thing.
OpenAI’s revenue grew 112 per cent over the past quarter to $3.4 billion, and its valuation doubled to $157 billion.
An investor’s dollar in OpenAI takes them to the moon. A dollar in Google buys a coffee.
That’s why Google’s IBM in waiting.
Google’s long time CFO Ruth Porat just left.
That’s a sign that Google’s IBM in waiting.
Her replacement Anat Ashkenazi promised more “efficiencies” and to cut costs.
That’s a sign that Google’s IBM in waiting.
Ashkenazi also spooked investors saying CAPEX will pass $13 billion a quarter to close the gap on AI.
That’s a sign that Google’s IBM in waiting.
Google did grow cloud, up six points to 35 per cent, but that was largely down to new customers using it to support their forays into data-heavy AI and crunching
And many of the companies that drove this growth are former Googlers who’ve jumped ship to make fortunes with start-ups built on the cloud they know.
Losing staff is a sign that Google’s IBM in waiting.
Or companies like Reddit, paid by Google to move their content to their cloud.
Paying people to use your tools is a sign that Google is IBM in waiting.
And Google’s continued cloud growth is reliant on Nvidia for its chips and doesn’t have a back-up plan.
That’s a risk suggesting that Google’s IBM in waiting.
Overall, Google’s growth led to its shares rising five per cent to a market cap of $2 trillion, which is less than half the value of its rival, Nvidia.
Yep. Google’s IBM in waiting.
Google has fallen from the top spot to fourth.
Its growth is slowing.
And it’s focused on defence.
It’s bitten the hand that feeds it - publishers and premium content - tried to extract more revenue from ads, and sidestepped laws that have led to antitrust.
Google’s now late in the game. It’s rich, but it’s also fat and slow. If money was the aim, it’s won, but history now shows it had to do quite a lot of evil to get there.
Add it all together, and Google does a lot of stuff we like and rely on, and billions of people use it, but it’s not exciting any more.
And that is why Google will soon be yesterday’s hero and become IBM.