Google's search share slipped from June to November, new survey finds.
ChatGPT gained market share over the period, potentially challenging Google's dominance.
Still, generative AI features are benefiting Google, increasing user engagement.
ChatGPT is gaining on Google in the lucrative online search market, according to new data released this week.
In a recent survey of 1,000 people, OpenAI's chatbot was the top search provider for 5% of respondents, up from 1% in June, according to brokerage firm Evercore ISI.
Millennials drove the most adoption, the firm added in a research note sent to investors.
Google still dominates the search market, but its share slipped. According to the survey results, 78% of respondents said their first choice was Google, down from 80% in June.
It's a good business to be a gatekeeper
A few percentage points may not seem like much, but controlling how people access the world's online information is a big deal. It's what fuels Google's ads business, which produces the bulk of its revenue and huge profits. Microsoft Bing only has 4% of the search market, per the Evercore report, yet it generates billions of dollars in revenue each year.
ChatGPT's gains, however slight, are another sign that Google's status as the internet's gatekeeper may be under threat from generative AI. This new technology is changing how millions of people access digital information, sparking a rare debate about the sustainability of Google's search dominance.
OpenAI launched a full search feature for ChatGPT at the end of October. It's also got a deal with Apple this year that puts ChatGPT in a prominent position on many iPhones. Both moves are a direct challenge to Google. (Axel Springer, the owner of Business Insider, has a commercial relationship with OpenAI).
ChatGPT user satisfaction vs Google
When the Evercore analysts drilled down on the "usefulness" of Google's AI tools, ChatGPT, and Copilot, Microsoft's consumer AI helper, across 10 different scenarios, they found intriguing results.
There were a few situations where ChatGPT beat Google on satisfaction by a pretty wide margin: people learning specific skills or tasks, wanting help with writing and coding, and looking to be more productive at work.
It even had a 4% lead in a category that suggests Google shouldn't sleep too easy: people researching products and pricing online.
Google is benefiting from generative AI
Still, Google remains far ahead, and there were positive findings for the internet giant from Evercore's latest survey.
Earlier this year, Google released Gemini, a ChatGPT-like helper, and rolled out AI Overviews, a feature that uses generative AI to summarize many search results. In the Evercore survey, 71% of Google users said these tools were more effective than the previous search experience.
In another survey finding, among people using tools like ChatGPT and Gemini, 53% said they're searching more. That helps Google as well as OpenAI.
What's more, the tech giant's dominance hasn't dipped when it comes to commercial searches: people looking to buy stuff like iPhones and insurance. This suggests Google's market share slippage is probably more about queries for general information, meaning Google's revenue growth from search is probably safe for now.
So in terms of gobbling up more search revenue, ChatGPT has its work cut out.
Evercore analyst Mark Mahaney told BI that even a 1% share of the search market is worth roughly $2 billion a year in revenue. But that only works if you can make money from search queries as well as Google does.
"That's 1% share of commercial searches and assuming you can monetize as well as Google β and the latter is highly unlikely in the near or medium term," he said.
The DOJ proposed banning Google from paying for search distribution deals.
Google's search dominance relies on distribution, not just technology.
Investors worry Google's market share could drop if distribution deals end.
The online search business is not about technology. It's about distribution.
The US Department of Justice made that clear Wednesday when it proposed fixes for a judge's earth-shaking ruling that Google is an illegal monopolist.
The DOJ's remedies cut to the heart of how Google distributes its search engine and how that broad reach is key to the company's dominance of this crucial and lucrative market.
The government's suggestion that Google be forced to sell Chrome initially grabbed the headlines. But, on Thursday, the potential crackdown on all distribution deals caught investors' attention.
The US government's lawyers said Google should be banned from offering "anything of value for any form" of search distribution. That especially includes Apple, but also covers any other partner or company, with limited exceptions, according to the DOJ's executive summary.
ISI Evercore internet analyst Mark Mahaney called this distribution crackdown "draconian" and said investors were surprised by the severity of the proposals. Google shares dropped 5% on Thursday.
The reason for this concern is that the online search business is not really about the quality of the technology. The edge comes from massive distribution and the huge volume of user queries that come with such a broad reach.
When people use Google to search on the web, the company monitors what results they click on. It feeds these responses back into its search engine, and the product gets constantly better. For instance, if most people click on the third result for a particular query, Google's search engine will likely adjust and rank that result higher in the future.
This self-reinforcing system is very hard to compete against. This is how the DOJ put it on Wednesday:
"Search engines rely on user data to improve search quality β an outcome that drives more users to a search engine. Users attract advertisers, and advertising dollars fund general search engines, creating a perpetual feedback loop that further entrenches Google."
One of the few ways to compete is to get more distribution than Google and pull in the extra queries and click-behavior data.
For many years, Google has paid to lock down most major sources of distribution. The most famous deal is with Apple. Google pays the iPhone maker about $20 billion a year to be the default search engine on Apple's mobile devices.
If the search business was actually about the quality of Google's technology, why does it have to pay Apple $20 billion a year? That question is at the heart of the DOJ's case, and Google has never been able to answer it properly. Because it keeps paying Apple.
If Google search technology is so great, the company shouldn't have to pay for distribution. People would just flock to its search engine all by themselves.
We could soon see a real-world test of this.
If the judge in this case agrees with the DOJ, then these payments will end β not just with Apple, but with any other third-party source of online distribution for Google's search engine.
This may have freaked investors out on Thursday. They know that the search business is mainly about distribution, and Google may not be able to do this now.
In a worst-case scenario, Google could lose a material slice of the US search market, according to Mahaney.
"We believe Google's default search placements via contractual agreements represent 50%+ of Google's US search queries," he estimated on Thursday.
If half of Google's US search queries go away, that could threaten the self-reinforcing cycle of user click data improving its results.
Suddenly, Google Search may not be so uncatchable.
Google's top lawyer, Kent Walker, said the DOJ's proposals would "break" the company's search engine and "deliberately hobble people's ability to access" the service.
Google gets to propose its own remedies on December 20.
That follows Judge Mehta's ruling in August that Google maintains an illegal monopoly in search and advertising markets. Google will get to suggest its own remedies, likely in December, and the judge is expected to rule next year.
If Google ends up having to sell or spin off Chrome, it would be a blow to the company. Meanwhile, advertisers and search rivals would likely cheer the news, according to industry experts.
Separating Chrome from Google and preventing default search placement deals "would put Google Search into competition with other paths for advertisers to reach potential customers," said John Kwoka, a professor of economics at Northeastern University. "Advertisers would find competitors for their business, rather than needing to pay a dominant search engine."
Chrome is a hugely popular Google product that the company leans on to grow and maintain its search advertising empire. Chrome holds 61% of the US browser market share, according to StatCounter, while 20% of general search queries come through user-downloaded Chrome browsers, according to the August ruling from Judge Mehta.
Distribution and self-reinforcing data
Chrome is a valuable distribution mechanism for Google Search, and a portal into the searching habits of billions of users.
When you open Chrome and type something into the search bar at the top, these words are automatically transformed into a Google Search. On other browsers and non-Google devices, that's not necessarily the case. With Windows devices, for instance, the main browser defaults to Microsoft's Bing search engine. And when there's an option for users, Google pays partners billions of dollars to set its search engine as the default.
Chrome avoids all these complications and costs because Google controls it and sets its own search engine as the default for free.
Once this important distribution tool is in place, Google collects mountains of user data from the browser, and from searches within the browser. This information goes into creating higher-value targeted advertising.
There's an equally powerful benefit of Chrome: When people use it to search on the web, Google monitors what results they click on. It feeds these responses back into its Search engine and the product gets constantly better. For instance, if most people click on the third result, Google's Search engine will likely adjust and rank that result higher in the future.
This self-reinforcing system β supported by Chrome β is very hard to compete against. One of the few ways to compete is to get more distribution than Google. If Chrome were an independent product, rival search engines might be able to get a piece of this distribution magic.
In 2011, venture capitalist Bill Gurley called Chrome and Android "very expensive and very aggressive 'moats,' funded by the height and magnitude of Google's castle."
Google has also tapped Chrome as a way to reach users with new AI products, including Lens, its image-recognition search feature, as it tries to fend off emerging rivals such as OpenAI.
The lesson of Neeva
Many have tried to take on Google in the browser market, and many have failed. Take Neeva, a privacy-focused search engine launched by Google's former ads boss Sridhar Ramaswamy and other ex-Googlers.
Not only did the startup have to develop a search engine from the ground up, it also had to build its own web browser to compete with Chrome because this is such a major source of distribution in the search business.
Neeva lasted four years before closing its doors.
"People forget that Google's success was not a result of only having a better product," Ramaswamy once told The Verge. "There were an incredible number of shrewd distribution decisions made to make that happen."
A 'manageable inconvenience'
Teiffyon Parry, chief strategy officer of the adtech company Equativ, said that losing 3 billion monthly Chrome users would be "no small blow" to Google.
However, Google has many other ways of reaching users and scooping up data, including Gmail, YouTube, a host of physical devices, and the Play Store. The company also has a standalone app that functions as a web browser and has the potential to effectively replace Chrome.
"Chrome has served Google exceptionally well, but its loss would be a manageable inconvenience," said Parry.
Implications for the web
Lukasz Olejnik, an independent cybersecurity and privacy consultant, is concerned about what might happen to the broader web if Chrome is sold off.
"Chrome is adopting web innovations really fast," he said, giving Chrome's security features as an example of how Google has innovated.
Without Google's financial support, Chrome might struggle on its own, and it's possible that progress on the web slows, weakening the ecosystem, he explained.
"The worst case scenario is deterioration of security and privacy of billions of users, and the rise of cybercrime on unimaginable levels," he warned.
Would Chrome even survive on its own?
One of the biggest questions is how a Chrome spinoff might work. A Bloomberg analysis valued Chrome at $15 billion to $20 billion if it were to be sold or spun off. Would antitrust regulators allow a major rival to buy it?
It's "unlikely" that Meta would be allowed to acquire it, tech blogger Ben Thompson wrote on Wednesday. That would leave someone like OpenAI as a potential buyer, he said, adding that the "distribution Chrome brings would certainly be welcome, and perhaps Chrome could help bootstrap OpenAI's inevitable advertising business."
And if Google has to sell Chrome, will it also be banned from making distribution deals with whoever buys the browser?
"The only way [a spun-off Chrome] could make money is through an integrated search deal," said tech commentator John Gruber on a recent podcast.
There may be ways around it. Earlier this year, a group of researchers published a paper analyzing Google Chrome's role in the search market and within Google's business (it should be noted one of the authors works at rival DuckDuckGo).
"The precedent set by Mozilla's financial dependence on Google highlights potential challenges for Chrome in maintaining its operations without similar support," the researchers said, nodding to the fact Google pays Firefox a lot of money to be its default search engine, despite Firefox's dwindling user numbers.
The researchers proposed one way to divest Chrome without letting it die is to let Google still financially support it if necessary but block Google from exclusive contracts that make Google Search the default. They also suggested web browsers could be reclassified as public utilities.
"Under such a classification, Chrome's agreements and decisions would be subject to heightened scrutiny, particularly to safeguard consumer welfare and prevent exclusionary practices," they wrote.
Google's response
Google plans to appeal any ruling, potentially delaying any final decision by several years. In a statement earlier this week, Lee-Anne Mulholland, Google's vice president of regulatory affairs, said the DOJ was pushing "a radical agenda that goes far behind the legal issues in this case."
"The government putting its thumb on the scale in these ways would harm consumers, developers and American technological leadership at precisely the moment it is most needed," she added.
Are you a current or former Google employee? Got more insight to share? You can reach the reporter Hugh Langley via the encrypted messaging app Signal (+1 628-228-1836) or email ([email protected]).
