Perceptions and performance can change very quickly in the generative artificial intelligence business.
Consider the most-recent financial report from Alphabet, considered perhaps the most vulnerable of hyperscale app firms to new competition coming from generative AI rivals who see a chance to recast the search business.
And the biggest danger to Alphabet arguably is regulatory, not AI impact. Antitrust action, a threat to all the hyperscalers, now already has emerged for Alphabet. On August 3, 2024, a possible landmark ruling by U.S. District Judge Amit Mehta found Google guilty of violating antitrust laws by maintaining an illegal monopoly in the search engine market, as it pays partners such as Apple for default status on Apple devices.
Though remedies are not yet clear, it is possible there is some future diminution of the market value of Google’s default app status, even if users can easily change default search providers at will.
Separately, Meta’s open source approach to Llama also could have key market impact.
Venture capital firm Andreessen Horowitz suggests enterprises are quite open to open source generative AI. “We estimate the market share in 2023 was 80 percent to 90 percent closed source,” Andreessen Horowitz says. “However, 46 percent of survey respondents mentioned that they prefer or strongly prefer open source models going into 2024.”
Over time, “enterprises expect a significant shift of usage towards open source, with some expressly targeting a 50/50 split—up from the 80 percent closed/20 percent open split in 2023,” Andreessen Horowitz notes.
That noted, such impact is not yet seen.
Total Alphabet revenue in the three months ended June 30, 2024 rose 13.6 percent year over year to $84.74 billion, outpacing the $84.19 billion expected. Earnings per share jumped 31 percent on an annual basis to $1.89, exceeding the $1.84 expected.
With the caveat that we are early in the transition, competition is not yet seen in the financial results. Though investors were--and might still be--concerned about what generative AI might mean for Alphabet’s search revenue, the opposite appears to be the case, at least for now.
“People who are looking for help with complex topics are engaging more and keep coming back for AI overviews,” Sundar Pichai, Alphabet CEO said, noting high engagement from younger users aged 18 to 24 when they use search with AI overviews.
The danger of some market share cannibalization is so far offset by continued growth of search revenues. So even if some new competitors hope to take share, the market itself continues to grow. And Google arguably continues to hold a lead in scale.
It will take some time for the appeals process to play out (years), and then the key issue of remedies has to be settled. In the meantime, it remains unclear whether GenAI will actually harm Google search to any serious degree.
A similar antitrust ruling in the European Union in 2018 forced Google to allow users to choose a different search engine as their default when setting up a new Android phone, while allowing the company to charge other search engines for the right to be included as an alternative. So far, this ruling has had a negligible effect on Google’s market share in Europe, most would say.
The 1998 antitrust ruling against Microsoft prohibited bundling of browsers with operating systems arguably has not impeded Microsoft’s growth, though some would say the ruling allowed Google to emerge as the leader in browsers.
AT&T was broken up (seven new local access firms plus long-distance provider AT&T), but the firm has largely been reassembled. And in that case, as well as with IBM, one might plausibly argue that other platform changes (the internet; TCP/IP; the decomposition of services into layers; personal computing; cloud computing) were more responsible for fundamental changes than the antitrust actions.
Perhaps the point is that antitrust action is seldom welcome by the firms to which it is applied. But the long term impact is hard to discern.
And though the impact of GenAI might also be significant for incumbents, it remains to be seen whether that impact is positive, neutral or negative.
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