February 26. 2024. 4:48

The Daily

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Search to answer engine shift challenges dynamic competition

Microsoft and Google’s move towards answer engines requires competition authorities to preserve dynamic competition while minimising adverse effects on third parties, writes Christophe Carugatti.

In January 2023, Microsoft announced a $10 billion investment in Open AI, the creator of the AI Chatbot ChatGPT that provides direct answers to a user prompt. The investment supports an already $1 billion partnership in 2019 to support Open AI technologies on Microsoft Azure cloud.

In exchange, Microsoft gets an investment return and a commercial return by integrating Open AI products and services into its search, web browsers, cloud computing and office suite services. Pressure mounting on Google to move from search to answer engines will significantly impact search engine and advertising markets.

Online search engine services were a $260 billion industry in 2022 based on worldwide search advertising spend. The industry is dominated by Google Search, which has had a global market share on desktops above 85% for almost a decade. Created nearly 30 years ago, online search providers are giant repositories that crawl, index and rank the web in the form of blue links. Following a query, users must click on a link to access the information they are looking for. But now, the industry is moving from search to answer engines.

The answer engine directly answers a query and interacts with users like a conversation between two people instead of providing a list of blue links. It thus reduces search costs to a minimum, but doing so might significantly impact content creators, including publishers and bloggers.

Indeed, while it is too early to know how users will behave with answer engines, they might click significantly less or no longer even click on blue links. The answer engines might thus considerably diminish traffic to websites. It could impact the business models of search engines that rely on search advertising by promoting sponsored blue links, content creators and the underlying advertising industry that relies on advertising to generate revenues—an advertising market worth $615 billion in 2022 based on total worldwide digital advertising spending that includes banner, classifieds, search, and video advertising.

While answer engines will likely disrupt the current search engine and advertising markets for search engines and content creators, search engine providers have no choice but to move to answer engines. Released in December 2022, ChatGPT has already reached 100 million monthly active end users by February 2023.

In comparison, it took 2.5 years for Meta-owned Instagram to reach this number. The model is also likely to be profitable, up to $11 billion in revenue annually, according to Open AI CEO Sam Altman. Answer engines are thus a matter of life or death.

Microsoft decided to fight for its survival. Thanks to its partnership with Open AI, it was able to launch a swift attack against Google to quickly gain market shares from search engines by incorporating ChatGPT technologies into its search engine Bing. Google responded by announcing the forthcoming release of its own AI chatbot Bard into its search engine Google Search.

For the first time since Google dominated the search engine market, the latter is again prone to competition and innovation from current search engine providers and new entrants to the market. More and more service providers are attracted by the appetite to take market shares from Google search in the emerging market of answer engines. Intense dynamic competition is likely to take place in the forthcoming months.

This dynamic competition from innovation in AI technologies occurs at a time when policymakers and competition authorities worldwide intensively fight the dominance of large online platforms such as Google and Microsoft, with a myriad of digital competition regulations and antitrust actions. While they are not the cause of this dynamic competition, they might significantly impact the development of answer engines as they impose business restrictions on these platforms.

Indeed, they ban platforms from promoting their own products and services over rivals. In Europe, the European Commission fined Google €2.42 billion in 2017 for giving preferential treatment to its comparison shopping service Google Shopping in Google search. Google offered Google Shopping a prominent placement above search results in an enriched format and demoted rivals by subjecting them to a different algorithm.

Unless Google finds a way to offer equal treatment to forthcoming rival AI chatbots and content creators, digital competition regulations and antitrust enforcement might prevent Google from moving to answer engines.

The shift from search to answer engines will thus be a test for policymakers and competition authorities worldwide. They will have to make difficult choices to assist the inevitable transition from search engines to answer engines.