The Daily: Google vs. The World—Are ‘AI Overviews’ driving growth, is Google’s hold on search starting to loosen, and more

On today's podcast episode, we discuss how much Google’s ‘AI Overviews’ can drive ad revenue for the company, which platform is most likely to chip away at its search lead, and what will be the most likely outcome from its antitrust trials. Tune in to the discussion with host Marcus Johnson, director of Briefings Jeremy Goldman and analyst Daniel Konstantinovic.

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Episode Transcript:

Marcus Johnson (00:00):

This episode is brought to you by TikTok for Business. Brat summer is over. A shame, but it is. TikTok for Business is just getting started. Whether your marketing goals are brand performance or full-funnel related, leverage TikTok for businesses' insights to drive business growth. You can learn more at tiktok.com/business. Head there and hit Get Started.

Daniel Konstantinovic (00:26):

This is a big shake up to Google's search-advertising strategy. Even though consumers like the AI Overviews and utilize the AI Overviews, I'm not sure how much evidence there is for how much engagement it drives.

Marcus Johnson (00:48):

Hey, gang. It's Thursday, October 10th. Daniel, Jeremy, and listeners, welcome to the Behind the Numbers Daily, an eMarketer podcast made possible by TikTok.

(00:57):

I'm Marcus. Today, I'm joined by two folks. Let's meet them immediately. We start with our Senior Director of Briefings. He is based in New York, in the city. It's Jeremy Goldman.

Jeremy Goldman (01:08):

Excited to be with you for this great conversation, Marcus.

Marcus Johnson (01:11):

Hey, fellow. Good energy, maybe too much. We'll see how it goes. I'm also joined by one of our analysts who writes for our marketing and advertising briefing. He is based in the city as well. It's, of course, Daniel Konstantinovic.

Daniel Konstantinovic (01:24):

Hello. I feel just all right about being here.

Marcus Johnson (01:27):

That's better. Yeah, that's where we live. All right. You could be English in another life. Today's facts. What is the worst U.S. city for rush-hour traffic?

Daniel Konstantinovic (01:40):

It's LA, right?

Marcus Johnson (01:40):

No.

Daniel Konstantinovic (01:41):

I mean, everyone always jokes that it's that.

Marcus Johnson (01:44):

Yes, that is the one. Conventional wisdom always suggests that it's LA. That's what people talk about so much. LA is in third place.

Jeremy Goldman (01:51):

D.C.?

Marcus Johnson (01:52):

D.C. is seventh.

Daniel Konstantinovic (01:54):

Wow.

Jeremy Goldman (01:54):

It'd be funny if it was New York.

Marcus Johnson (01:56):

There we go. New York.

Jeremy Goldman (01:57):

It is? It is New York? Oh my God.

Marcus Johnson (01:59):

Yeah. We should go into this measurement. This is rush hour as well. They basically looked at the difference between getting somewhere during normal hours, and getting somewhere during rush hour, and how much time you are delayed.

(02:12):

Kayla Zhu of Visual Capitalist noting that, "Every year, U.S. drivers lose an average of 42 hours to sitting in rush-hour-traffic congestion. The equivalent of a full work week according to 2023 INRIX or INRIX, maybe is how it's pronounced, Global Traffic Scorecard.

(02:31):

New York drivers losing two-and-a-half times that many hours, at 100 hours per year that they lose to traffic and rush-hour traffic. Followed by Chicago 96, and LA with 89 hours. Boston was in a very, very close fourth place, and then a little bit further gap to Miami in fifth.

Jeremy Goldman (02:53):

By the way, great life hack is record a podcast during rush hour. We're not commuting right now because-

Marcus Johnson (02:59):

From the car?

Jeremy Goldman (03:00):

No. No. No. Literally.

Marcus Johnson (03:01):

Just have terrible advice.

Jeremy Goldman (03:03):

We are literally recording around rush hour, so there you go.

Marcus Johnson (03:06):

Yes, around. Yes.

Jeremy Goldman (03:06):

Around.

Marcus Johnson (03:07):

Not in it.

Jeremy Goldman (03:08):

No.

Marcus Johnson (03:08):

We're live from our vehicles. Super dangerous. Interestingly though, once you get out of the top 10 worst cities, the number of lost hours is a lot lower. Drivers in Nashville, which is number 11 on the list, lose 56 hours per year to rush-hour congestion. Nearly half of those in first place, New York.

Jeremy Goldman (03:27):

I think they have a country song about losing time due to rush hour.

Marcus Johnson (03:32):

I hope not. Anyway, today's real topic, Google versus the world. Today we're discussing how Google is doing on a number of fronts. Jeremy is going to be taking the side of Google for most of this episode. Danny will be arguing for what we will call, "The field." Which is basically everyone else.

(03:58):

Let's start by discussing Google's AI Overviews. Danny, you recently noted that Google is rolling out ads across AI Overviews. It's AI-search-result products that launched last year. Basically, this was rolled out to some folks in the beginning. You typed in a search, and at the very top you would get a bar with some words in it that basically gave you an answer, and then you scroll down for links and other things. This is called their AI Overviews product.

(04:26):

You were noticing that ads will appear separately from the AI-powered responses. In one example from The Verge, a search for "How to clean grass stains" first provides the response with recommended products featured below the AI-generated text. It would give you the answer at the top, and then if you scrolled down, there'd be a section that says, "Sponsored." Maybe it would be a brand that could give you a product to help you remove those grass stains.

(04:52):

The question is, will Google's AI Overviews drive meaningful growth for Google? Obviously, as it translates into hopefully ad dollars for them down the road. Let's give Jeremy a chance to present the reason why for Google, why it will.

Jeremy Goldman (05:06):

Sounds good. By the way, Marcus, I know I'm going to compete very heavily with Danny here, but please don't be any nicer to me just because it's my birthday.

Marcus Johnson (05:14):

I wouldn't dream of it.

Jeremy Goldman (05:15):

All right. Yeah. No.

Marcus Johnson (05:16):

Happy birthday to Jeremy.

Daniel Konstantinovic (05:17):

Objection. Can I approach-

Marcus Johnson (05:19):

I want that struck-

Daniel Konstantinovic (05:20):

...the bench?

Marcus Johnson (05:20):

...from the record.

Jeremy Goldman (05:23):

Trying to influence the judge a little bit. I know. Yeah.

Marcus Johnson (05:24):

It's working.

Jeremy Goldman (05:25):

I mean-

Marcus Johnson (05:25):

Happy birthday.

Jeremy Goldman (05:26):

Okay. Thank you. Are they working? I would say, "Yes." This is a very interesting balancing act, but I believe that Google can. First off, these gen-AI Overviews are proving effective. Most data that we've seen, is that people like these things and they're gravitating to them.

(05:48):

Obviously, there's a little bit of a challenge there in thinking about the ad surface, if you will. How much can you charge for these ads, and how many ads can ultimately stand on a page versus traditional-search advertising.

(06:04):

If you're talking about pretty much the most data-driven company on earth. Trying to solve a math equation and figuring out where they can place ads, and how much they need to cost, and how effective they need to be. There's really nobody better to bet on than Google for being able to achieve that vision.

Marcus Johnson (06:23):

The Google's AI Overviews on mobile, we should specify, now feature ads. Yeah. Like we said, if they're trying to remove a grass stain, you could have a spray-and-wash brand shopping ad placed below the AI-generated answer labeled, "Sponsored." Danny, why might this not work out well for Google?

Daniel Konstantinovic (06:43):

Well, there's a couple of things standing in the way of potential success. The first big thing, Jeremy raised a math equation. The really big math equation that Google is trying to figure out is how do we stop losing money on AI?

(06:58):

Google is obviously a huge operation that makes a lot of money, and has posted a profit very consistently, but AI is a super-costly technology. If you look at OpenAI, for example, it's been well reported that they are losing a lot of money every day to power their AI technology.

(07:19):

Will sponsored ads under AI Overviews recoup all of those losses? I think not. To dampen my own point here, there is so much other revenue coming in at Google, that it doesn't necessarily have to.

(07:37):

The other question is whether this devalues other ad space on Google Search. AI Overviews now takes up the top spot on Google Search results. That makes it very desirable ad space. All of that other ad space like sponsored links or sponsored products further down. These things are now pushed further down the page, which devalues them and could lead to less competition for those ad spots.

(08:07):

This is a big shake up to Google's search-advertising strategy. Even though consumers like the AI Overviews and utilize the AI Overviews, I'm not sure how much evidence there is for how much engagement it drives. If you are a Google user and you're getting the answer to your query just dropped to you right there at the top of your search. What incentive is there for you really to scroll down or explore further? It's just like, all right, I typed in my question. I got my answer. I'm out.

Jeremy Goldman (08:43):

Well, Can I counter punch you or counter... Sorry. Counter-

Daniel Konstantinovic (08:47):

Oh my gosh.

Jeremy Goldman (08:47):

Okay. Don't call HR. Please don't call the people team. Sorry. No, counterpoint you? I don't know. It sounded wrong. A very valid point, but I think that there are certain places where people are just used to clicking through. You're right. How does this change the experience when you're not clicking through to get the information you need?

(09:06):

I think the answer is that it's going to be a lot more commercially driven. It used to be that you would get a whole bunch of links, obviously through Google. To get even information you went to other pages. I think that more and more, what if Google becomes the place where you discover all the information? You don't have to leave Google, but if you want to transact, then you're leaving Google.

(09:30):

Then I think people are used to the idea of I'm going to transact somewhere else. That's what we've seen with social commerce over the last few years, with our forecast that keeps on growing and growing. We define social commerce as transacting basically one click away, meaning they can go to a D2C site or somewhere else to transact. Again, if you think about who can get this right.

(09:55):

Also, by the way, the whole point about AI being really expensive, a hundred percent right. Also, this is a great way of getting everybody else out of the market. Google has so many different things and so many ways that it can make money, that it can basically fund this AI development in order to not lose its lead.

(10:14):

I would say maybe not all these revenues are incremental. Maybe these are ways of encouraging second-tier players of not trying to invest, because they're not going to be able to outspend the Googles and Metas of the world.

Marcus Johnson (10:27):

One argument or interesting part of this is what it does to publishers as well. We mentioned that consumers seem perfectly happy with these, at least from the initial readings. However, Danny, you wrote about this, right? The impact to some leading publishers so far, seems like it's been negligible.

Daniel Konstantinovic (10:45):

Yes. The impact so far, does seem negligible, at least according to reports from a handful of publishers in Q2, but we'll see. There's still a long way to go. There have been some tweaks to AI Overviews that are designed to make these sources of information for the prompts more visible, which is being framed as a way to hopefully increase click-through rates.

(11:11):

It's just very hard to say what the long-term outcome for publishers is here. Because like I was just saying, I would suspect that in the long term, click-through rates for these AI Overviews is going to be pretty low, and that's going to damage publishers over time.

(11:28):

These publishers, and because of the threat of AI, have agreed to deals with Google or OpenAI, for large sums of money in exchange for early access to AI tools. The AI companies get access to all of their catalog to train on, and future work that will be put out by the companies as well.

(11:51):

The longer it goes on, and the more content that AI models have to train off of from these publishers. The worse off I think these publishers may be in the long run, outside of this influx of cash that they're getting around deals. I tend to view the outcome of this for publishers is pretty negative.

Marcus Johnson (12:13):

Okay. I mean, it's still early days.

Daniel Konstantinovic (12:16):

Yeah. Yeah.

Marcus Johnson (12:16):

Right? They've only rolled this out across so many places. This isn't popping up everywhere, and so maybe that publisher traffic that it gets from Google, maybe that does start to get impacted as we go further down the road.

(12:30):

Trishla Ostwal of Adweek was noting that Google's AI-generated search, AI Overviews, is boosting publisher traffic thanks to a new feature that embeds direct links within the text. This thing is going to look different tomorrow or further down the road than it does today. That could influence things as well.

Jeremy Goldman (12:44):

I'm also going to get in trouble for this, but it's fine.

Marcus Johnson (12:44):

Here we go.

Jeremy Goldman (12:48):

No, I-

Daniel Konstantinovic (12:48):

It's his birthday.

Jeremy Goldman (12:49):

Right. Right. If anybody's mad at me for saying this. There was obviously a lot of speculation around that, in particular, publishers being concerned about their organic search. I was actually asked to follow up with a few different data sources, to look to see the state of organic search. It's not really super conclusive that, oh, organic search is falling off of a cliff.

(13:12):

What's actually probably more obvious, is that social traffic from publishers is a major issue, and that's something that we consistently see on the decline. I wouldn't say that AI Overviews are not going to have an impact. It's just that it's not really so present in the data from a number of different places that I've looked. This is something that we're going to be following very closely.

Marcus Johnson (13:34):

Yeah. Sticking with this search piece of this. Google's grip on search slips, as TikTok and AI startups mount a challenge. This was title of an article from Suzanne Vranica and Miles Kruppa of the Wall Street Journal. They were pointing to TikTok, letting brands target ads based on search queries.

(13:54):

Also, you've got AI startup, Perplexity introducing ads later this month. It's AI generated answers, and more and more folks starting their product searches on Amazon. Daniel, we'll go to you first for this one. Tell me why you think Google's grip on search might be starting to loosen up.

Daniel Konstantinovic (14:13):

I have a tough position to argue here, but I'm going to do my best.

Marcus Johnson (14:16):

Good luck.

Daniel Konstantinovic (14:18):

I think the TikTok point that you've raised is a really interesting one. It's one that's been raised by Google itself, but as a way to maybe assuage regulators. It's something they're putting out there to say like, "Whoa. Whoa. We don't run a monopoly. Look, young users are using TikTok to search instead of old-man Google."

(14:41):

There's some truth to it. I mean, it may be hints to a changing behavior or changing taste among young consumers. Google still operates the largest search-advertising business in the world, and it is synonymous with internet search. Those same Gen-Z kids, or adults now too, are not just saying, "Let's TikTok it. I'm going to look it up on TikTok." Well, I mean they're probably saying that, but they're not using TikTok as a verb for search the internet, in the way that they do Google. Maybe that's a little bit anecdotal but-

Jeremy Goldman (15:17):

Wait. I feel like, Danny, you're arguing my point then.

Marcus Johnson (15:20):

Yeah. No Danny, what are you doing?

Daniel Konstantinovic (15:22):

Oh, that's such a good point.

Jeremy Goldman (15:23):

I'll take it. Thank you. Danny cedes this point.

Daniel Konstantinovic (15:26):

I object. I object to my own questioning.

Marcus Johnson (15:31):

No. Well, really quickly, I mean you mentioned that they are the biggest company in terms of search-ad dollars. They are, but next year we estimate that Google Search and revenue is going to fall below 50% for the first time since the beginning of time.

(15:44):

Second place Amazon, and third place Apple were each going to grow at 22 and 16% respectively. That's triple and double Google's growth. They may be, but it does seem as though, at least according to our estimates, that they are starting to have their grip loosened a little bit.

Daniel Konstantinovic (15:58):

I think that there are just some really big shifts going on in the search market and in the ad market that are having budgets move around. Certain competitors are starting to claim little bits of Google's market share. Because if you can just claim a percentage point of what Google has, that could potentially be billions of dollars.

(16:18):

With enough companies striking away and chipping pieces of Google off, eventually the complete ownership of all of the search market will start to waiver. I do think that their total dominance is shrinking, but they are still overall the dominant force, I would say.

(16:40):

I think the biggest threat to their search business is regulation and litigation. I mean, we just had earlier this summer, ruling in a DOJ case that said that Google does operate a search monopoly. There's another DOJ suit going on right now, and these things could potentially lead to a breakup of Google's business.

Marcus Johnson (17:02):

Well, let's stay here for a second then. Danny, we'll start with you quickly, and then Jeremy jump in. I mean, there was a question written as the title of an Economist article, Will America's Government Try To Break Up Google? In August, as Danny mentioned, Judge Amit Mehta ruled that Google's search business is responsible for 90% of its operating income, was an illegal monopoly.

(17:20):

Google's also currently in the middle of its second antitrust trial that centers around Google's advertising technology. And its alleged monopolistic behavior over how ads are bought and sold online. Once the dust settles, both trials concluded, Danny, what's the most likely outcome in your opinion?

Daniel Konstantinovic (17:37):

It's hard to say, for a couple of reasons. I think a likely or possible outcome from the first ruling that we already have, is maybe some restriction on the kinds of deals Google can make to be the default search engine on certain platforms. Their ability to reach out to Apple and say, "Hey, we'll give you a cut of our search revenues, if you make us the default search engine on Safari." That might be restricted, which would be a really big blow to Google's market, or at least could be, because people have been using Google primarily, for decades at this point.

(18:12):

With the second one, it's a lot harder to say what an outcome will be for a couple of reasons. I mean, despite the fact that we have a much more active FTC and DOJ when it comes to big tech at the moment, than we have in recent administrations. The state of those regulatory bodies is really up in the air with the presidential election. It's hard to say how the outcome of these trials will affect Google's business, because there are so many unanswered questions around politics at the moment.

Jeremy Goldman (18:45):

Then my argument, I guess, about Google is going to be fine, which is interesting. I will just say, let me break character for a second, and agree with some of Danny's stuff about the potential remedies. There could be mandated support for pre-bid and header bidding. The whole entire rev-share deals that they've had before. There could be a prohibition on tying arrangements.

(19:08):

There are all these different things that could happen at Google. If I'm taking Google's side here and saying, "Things are going to be fine." I would largely say it because we, we meaning Google, have shown that there is more and more awareness of the idea of search. Search is just all over the place in so many different arenas, and we are providing benefits to the consumer.

(19:31):

The consumer is gaining something because of all the innovations that we've been able to bring to the market. Do you really want to step on that? The consumer has spoken. They've had opportunities to turn to other search engines, to other companies. We, meaning Google, have a pretty strong brand reputation, whether or not we deserve it.

(19:53):

No. Truly from a brand reputation and brand safety standpoint, we're known as the less evil out of all of the big players. In a lot of ways, I think that Apple probably reigns supreme, and then we're pretty high up there above a number of other companies. I think that there's something to be said for that.

Marcus Johnson (20:11):

Jeremy, let me ask you this to close out the show. I'll frame it as which of these companies do you think makes Google the most nervous? We've got obviously Amazon. I think they've got about 20 something, 22, 23% share of the search and space at this point. People go into Amazon first for a lot of their product searches versus Google.

(20:32):

We also have TikTok we mentioned as a search engine. In the pitch to advertisers viewed by The Journal, TikTok said, "The platform had a global-daily-search volume of over 3 billion, and with a quarter of users searching for something within 30 seconds of opening the app."

(20:47):

You've got TikTok there. Amazon, TikTok or Apple. Apple and OpenAI as a search engine. If Judge Mehta rules that Google can no longer pay Apple and others to be the default search engine on its devices, that could hurt the company, especially as Apple Intelligence gets rolled out this month.

(21:03):

I was speaking to Ganja Savilia who covers AI for us, one of the folks covering AI for us here. We were talking about how OpenAI's ChatGPT will help out. Will help Siri when you ask Siri questions and she doesn't know the answer, it will lean on that technology. Apple folks have to opt into that, so it's not going to be everyone. Which of those companies do you think makes Google the most nervous, in terms of trying to take some of its search empire?

Jeremy Goldman (21:28):

I am going to actually say, I think that a lot of people might say Meta here. They're up against for some of the same ad business. Because of that, I actually think it's a less interesting answer, so I would say Amazon for going full circle.

(21:43):

If a lot of information gets present and surfaced through AI Overviews, then more and more of that click is going to be to transact. That puts them naturally just as Amazon builds its retail-media business, and moves off site and tries to look for other ways to grow.

(22:00):

It's going to be going after brand-awareness budgets that were previously going to Google, and more and more these companies are going to butt heads. Obviously, digital-advertising spend is going to keep going up. Anybody who looks at our forecast knows that. The question is, how much of that is incremental? How much of that is Google clawing something away from Amazon or vice versa? I would really say Amazon here.

Marcus Johnson (22:23):

Yeah. Fair take. That's what we've got time for for today's episode. Thank you so much to my guests for hanging out with me today. Thank you to Jeremy.

Jeremy Goldman (22:30):

Thank you for not sending me any cupcakes in the mail, but I love you anyway.

Marcus Johnson (22:33):

I just found out. A thank you to Danny.

Daniel Konstantinovic (22:37):

Of course, Always happy be here.

Marcus Johnson (22:38):

Yes, indeed. Thank you to Victoria, she edits the show. Stuart runs the team. Sophie does our social media. Thanks to everyone for listening in. We hope to see you tomorrow for the Behind the Numbers Weekly Listen, a new marketer-video podcast made possible by TikTok. You can see us in almost real life and see some of the charts that we're talking about on YouTube and now Spotify. If you want to watch the show, the Weekly Listen there, where of course you can listen to our voices the usual way.