Why Alphabet investors shouldn't worry about OpenAI's search engine - for now

By Therese Poletti

Competition in search looms, but whether it will it be a big improvement is the big question

Alphabet Inc. investors shouldn't worry too much yet about the search engine reportedly set to be announced by OpenAI next Monday.

Privately held OpenAI, which did not respond to a request for comment, will reportedly be creating a search engine as a feature of its popular chatbot, ChatGPT. According to a recent Bloomberg report, it will be able to search the web and cite sources in its results. Identifying those sources will be of key importance, given ChatGPT's propensity for errors. Reuters reported OpenAI will launch the product on Monday.

The Information reported recently that OpenAI's search could be partly powered by Bing, Microsoft Corp. (MSFT)'s search engine that had about 8% of the U.S. market in 2023, according to Search Engine Land. OpenAI's biggest investor is Microsoft.

The launch is expected the day before Google's I/O developer conference, which is set to begin on Tuesday. At its conference, Google (GOOG) (GOOGL) is expected to unveil more plans for its Gemini AI products, including its chatbot originally known as Bard. It already has been working on a revamping of its search engine to include AI.

When asked by an analyst on Google's earnings call two weeks ago about bringing more generative AI into search, CEO Sundar Pichai said the technology would expand the universe of queries to "where we are able to really provide people with a mix of factual answers, a link to sources across the web, and bring a variety of perspectives." He also noted that the company was making rapid progress with Gemini and that he views this moment "as a positive moment for search."

Investors, though, remain nervous. Alphabet's stock fell nearly 2% on Friday, and the company has also announced its very first dividend, a signal of maturity for tech companies.

Alphabet's Google search business, for its part, has been gearing up for more competition after dominating search for decades, with users often complaining of more ads than useful info. But in general, search today still works well, and it could be made more chaotic and inaccurate with the adoption of AI.

That said, AI-fueled results returning errors could hurt Google, as well; Pichai's comments about providing "a mix of factual answers" plus "a variety of perspectives" could potentially be a red flag. In March, Google restricted the types of election-related queries Gemini would respond to out of caution, while in February it removed the ability to create images using Gemini, after a big backlash over its treatment of race and ethnicity.

For now, investors probably don't have to worry too much about Google's dominance - but the company's search dominance is definitely under attack. Whether the competition has a credible search product is yet to be seen, but for every percentage of market share that Google loses, it could potentially mean a billion or so in ad revenue going to a rival. Still, it won't happen overnight.

-Therese Poletti

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05-11-24 0957ET

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