Google makes billions from advertising on its search engine. AI challengers now want to provide answers instead of links. But the group’s business model is robust.
Google’s advertising business has so far easily defied AI challengers. In the last quarter, Google’s advertising revenue increased by a good 13 percent year-on-year to 61.66 billion dollars (57.49 billion euros). The video subsidiary YouTube contributed a good eight billion dollars – around 21 percent more than in the same quarter of the previous year.
The development of Google’s advertising business – especially in web search as its most important money maker – is being watched very closely. A central question is whether attempts by competitors to use artificial intelligence to display direct answers instead of links will leave a mark on the search engine that has dominated for years. Some investors are betting on it: The challenger Perplexity AI was valued at more than a billion dollars in a recent financing round.
Meanwhile, Google itself is also trying to improve web searches with AI functions. For example, on Samsung’s new flagship Galaxy S24 smartphone and newer models of Google’s own Pixel branded phones, you can trigger searches by circling an object or word on the display.
Recently, such offers have been increasingly used, said CEO Sundar Pichai on Thursday. He was convinced that Google would be able to adapt its business model to the new AI possibilities.
At Google parent Alphabet, sales rose by 15 percent year-on-year to $80.5 billion. Analysts on average had only expected around $79 billion. Group profits grew to $23.66 billion from a good $15 billion a year earlier.
The growth of business with software and computing power from the cloud also contributed to this. The division increased operating profit to $900 million from $191 million in the same quarter last year.
Rival Microsoft also gave a clear signal that its investments in cloud and artificial intelligence are paying off. The software giant entered into a pact with ChatGPT developer OpenAI and, on this basis, is integrating AI functions into more and more of its products. The need for computing power for artificial intelligence is in turn driving Microsoft’s cloud business.
Microsoft increased sales in the third quarter, which ended at the end of March, by 17 percent year-on-year to almost $62 billion. Profits grew by a fifth to almost $22 billion. Both exceeded the expectations of experts. Sales on Microsoft’s cloud platform Azure rose by 31 percent.
At Alphabet, sales of the so-called “other bets” – future projects such as self-driving cars or delivery drones – rose overall from $288 to $495 million. The division’s operating loss has been reduced – from $1.22 billion a year ago to just over a billion dollars now.
Alphabet shares jumped a good eleven percent in after-hours trading. Alphabet announced a dividend of 20 cents per share for the first time – and also promised distributions for the future. Microsoft’s shares rose by a good four percent. With a market value of around three trillion dollars, Microsoft is currently the most valuable listed company in the world.
Source: Stern
