Alphabet has been paying Apple for years to maintain its dominant position as iPhone’s default search engine but an observed decrease in searches through Apple’s browser for the first time could be suggesting a shift in consumer behaviour towards alternative search engines, especially AI-powered ones.
According to a May 8 report by Saxo’s chief investment strategist, Chauru Chanana, the shift in consumer behaviour could be attributed to AI tools giving search engine users a more ad-free search experience.
“Traditional search relies on ad clicks; AI offers direct answers with fewer monetisable touchpoints. Google’s new features haven’t yet proven they can replace that revenue stream,” Chanana writes.
Google search revenue has been the main source of Alphabet’s core revenue, contributing about 57% of its roughly US$350 billion ($455.38 billion) FY2024 revenue.
Although Google has also begun adding AI features to their search engine, the monetisation challenge still remains as Google bears cite the lack of clarity on how the firm plans to monetise such services.
On top of structural challenges proving to be headwinds for the company, Google’s premium is also being threatened on the legal front given the DOJ’s ongoing antitrust case accusing Google of illegally monopolising the advertising technology market.
However, Chanana also offered a bull case for investors in spite of all the bearish news.
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“Disruption may be overstated as Google still retains deep integration across Android, Chrome, Gmail, and Maps which are touchpoints that anchor user habits. AI rollout is also accelerating, meaning Google’s AI Overviews and Gemini integrations may yet prove defensible and monetisable,” Chanana adds.
Occurring around Mid-May, Google will be hosting a developer conference which Chanana believes could be a critical opportunity for Alphabet to reshape the narrative as investors look out for the firm’s plans in monetising AI strategies and evolve from its traditional ad-driven model which will determine if Google remains a leader in the search engine space.
Current analyst projections expect Google Search to grow at a compound annual growth rate (CAGR) of 6% over the next five years, versus 10% for the broader digital ad market.
