Google’s ads business, which is the company’s main source of revenue, continues to thrive despite fierce competition and its investment in AI integration across its products. The Search business alone earned $44 billion, a significant 11 percent increase compared to the previous year. However, there is a looming question regarding how Google’s focus on AI will impact its core ads business. Currently, Google’s AI-powered Search Generative Experience (SGE) is only available on an opt-in basis, so its effect on the company’s advertising business is yet to be determined.
To proactively address this potential impact, Google is already taking steps. During Google’s recent earnings call, CEO Sundar Pichai mentioned that the company would be experimenting with new ad formats that align with the approach of SGE. Google has also showcased some initial ideas for these new formats. Pichai emphasized the importance of ensuring that advertisers still have the opportunity to reach potential customers throughout their search journeys, even as SGE evolves.
The integration of AI into search is part of Google’s long-term strategy. Pichai envisions the evolution of search and Assistant over the next decade, with SGE potentially becoming the standard way search works. These comments suggest that Google is beginning to delve into the possibilities of making its AI-powered search a substantial part of its business.
While the ads business remains prominent, other aspects of Google’s business are also thriving. YouTube ads generated $7.9 billion in revenue, indicating a growth rate of over 12 percent compared to the previous year. In response to the increasing demand for AI solutions, Google is incorporating a range of AI tools into YouTube, including a feature called “Dream Screen” that allows creators to integrate AI-generated photos and videos into Shorts.
Google’s cloud business, which offers AI services that customers can leverage for their own apps and products, witnessed a significant revenue increase of 22 percent year-over-year. In Q3 2022, the cloud division brought in $8.4 billion in revenue, further demonstrating the company’s commitment to AI integration.
During the earnings call, there was no mention of who would succeed Ruth Porat as CFO. In the second quarter of 2023, Alphabet announced Porat’s promotion to president and chief investment officer, responsible for overseeing Alphabet’s “Other Bets” investments. However, there has been no announcement regarding her successor.
Porat did hint at potential changes in the “Other Bets” division in the future. She stated that they have been working to identify opportunities for sharper focus and improved operational efficiency across the portfolio of Other Bets companies. This suggests that there may be some reductions or restructuring within Alphabet’s Other Bets investments, although specific plans have not been disclosed.
In conclusion, Google’s ads business remains strong, with a significant increase in revenue. However, the company is proactively preparing for the potential impact of its AI-focused initiatives, particularly the AI-powered Search Generative Experience. Google aims to ensure that advertisers can still effectively reach their target audience amid these changes. Additionally, other areas of Google’s business, such as YouTube ads and cloud services, are also experiencing growth, driven by the integration of AI technologies. The future of Google’s “Other Bets” division remains uncertain, with potential changes on the horizon as the company seeks to enhance focus and operational efficiency.
