Is ChatGPT a risk for Google?
ChatGPT is gaining popularity and attracting attention in recent months.
The AI model processes and analyzes a huge amount of data and answers users’ questions in natural language, as if it were a human being. Naturally, such technology tends to disrupt many industries, including Google, the biggest revelation of the contemporary world.
But according to Morgan Stanley, the tool’s success isn’t an intrinsic threat to the search engine, but it could squeeze the margins of Alphabet, the owner of Google, in the long run.
“Growing interest in artificial intelligence and the next generation of online compilers may force Google to accelerate the development of its own natural language model (LaMDA),” writes the bank. “We believe this will likely lead to significantly higher capital expenditures and lower operating margins. The risk of Google being disrupted lies in profitability.”
According to Morgan Stanley, the cost of searching on ChatGPT is around $0.02 – 7 times higher than the cost Google charges per search today. This happens because the computing power required to store, parse, and compile a large amount of text (into responses in natural language format) is too great.
“Although these costs are likely to decrease over time (as the efficiency of the model increases), these costs are currently very high,” the report states. Morgan Stanley estimates the cost of a Google search at $0.003.
“But it may be less because we use the total capital expenditure with Google’s technical infrastructure to calculate the costs, and that capital expenditure includes the data center equipment needed to support YouTube and Google Cloud Platform.”
The bank notes that Google’s search cost has increased in recent years as it invests and integrates more artificial intelligence tools into its search engine. “But it’s still a fraction of the cost of ChatGPT.” The bank’s analysts attempted to estimate the impact of Google’s move to AI and AI searches on the company’s margins.
The result is relevant: for every 10% of searches on Google that switch to this format, the company’s operating expenses will increase between $600 million and $11.5 billion (depending on the number of words per search) — and Alphabet will lose 1.5% of a point. margin operating in the middle of this range.
Another risk, according to Morgan Stanley, is that Alphabet may not monetize searches using AI and natural language models in the same way as Google’s paid searches.
“It speaks to the challenge for Google to continue to innovate and lead the market while protecting and providing free cash flow to its investors in a weaker macroeconomic environment and weaker advertising industry growth.”