The fourth largest company in the world celebrates its 25th birthday this week. But will the tech maven be able to keep moving forward?
And at the beginning of the year, dark clouds appeared in the sky of Google.
OpenAI shocked the world with its “ChatGPT” program. An artificially intelligent interviewer who provides human-like answers to questions asked by users. Soon after, Microsoft launched an AI-powered model of its Bing search engine.
Answering questions is at the heart of Google’s business model.
– There was a lot of fear at the beginning of the year. Robert Ness, chief investment officer at Nordea, says the market is becoming uncertain about how things will play out with Google moving forward.
Earn money fast
The time before Google is getting farther and farther away. An encyclopedia collection is kept as it fits on a bookshelf or to commemorate a bygone era.
When Larry Page and Sergey Brin registered the Google.com domain 25 years ago, it might have been hard to anticipate the massive impact their search engine would have on the world.
Or maybe that was just what they knew. The vision was nothing less than “to organize the world’s information and make it more accessible and universally used”.
In 1999, Google was already processing 500,000 searches per day. Today, about 8.5 billion searches are performed every day.
The development was also quickly evident on both the company’s top and bottom lines.
The amazing thing about Google as a startup is that it made money so quickly, says Robert Ness, chief investment officer at Nordea.
Three years later, the company is turning a profit, says Ness. By comparison, it took Tesla 18 years to become profitable.
And the share price was also interesting, to put it mildly. Since its IPO in 2004, the stock has risen just under 6,000 percent to a peak of around $150, which was reached in February of last year. This corresponds to an increase of about 24 percent annually, according to Nice.
I started in the garage
Like all true tech adventures, Google’s journey began in college and in the garage.
Stanford students Larry Page and Sergey Brin began developing the search engine, then called “Pacrop,” from their dorms in 1995. They soon renamed the product “Google,” inspired by the mathematical word for the giant number 10¹⁰⁰.
After an eager investor bet $100,000 on the founders in 1998, they moved into Susan Wojcicki’s garage. She later became employee number 16 and the first director of YouTube.
The video below was shot by Google employee number six, Harry Cheung, and shows what those garage offices looked like in 1998.
Today, Google has offices all over the world, and its headquarters are located on 200,000 square meters in Silicon Valley.
An embarrassing start to the AI race
A few months after ChatGPT took the world by storm, Google had a rather unsuccessful launch of its chatbot “Bard”, in which Bard answered questions incorrectly.
The company’s value dropped by $100 billion shortly after its launch.
It was an awkward start for them, says Ness.
He says Google has been reluctant to launch AI bots, precisely because it threatens the company’s existing business model.
But now Google has stepped on the gas pedal.
In May, CEO Sundar Pichai announced that Google had integrated its AI technology into more than 15 products, including Google Maps and Gmail. And startup problems with the Bard should be fine.
Google founder Sergey Brin, who left the company in 2019, has now returned to work in the field of artificial intelligence, according to the British Daily Mail. The Wall Street Journal.
Ness says Google is well positioned in the AI race.
Another advantage, Nice says, is Google’s access to data, which is a huge advantage in competing with AI.
People are still searching on Google
During the spring, the skies cleared in front of Google. And in July, the company reported solid earnings. The company’s revenue increased by 7 percent in the second quarter compared to the same period last year.
The stock is up 50 percent so far this year.
– You can see that people are still searching on Google, says Ness.
He explains that AI search engines have had a modest share of the market. 92 percent of all global searches still happen on Google.
On the other hand, Bing’s share fell from 3.3 percent last year to 3.0 percent in August.
challenges
But the future is not guaranteed for the tech giant.
In the US, more and more people are using platforms like Amazon and TikTok to get information and write The Economist.
Additionally, it is uncertain how companies will make money from AI fines.
AI research costs far more computing power, leading to lower margins. At the same time, it will be difficult to integrate ads into chatbots – and advertising revenue is Google’s most important source of income.
It’s a challenge, says Ness.
And in 2022, 80 percent of Google’s revenue will come from advertising.
Can Alphabet become more than just ads?
according to The Economist Google has long known that the company’s reliance on advertising revenue would be a challenge.
This was the main reason for the founding of the parent company, Alphabet, which should have several income legs to stand on.
One of them is Google Cloud, which leases data storage to large clients like Apple and Airbnb. In 2025, it is estimated that advertising revenue will account for 76%, due to the increase in cloud operations, according to Nice.
Alphabet is the fourth largest company in the world by market capitalization. Only Apple, Microsoft and Saudi Aramco are the largest.
Put simply, Alphabet is still Google and YouTube, Næss explains. Alphabet’s other businesses account for 0.4 percent of the company’s turnover.
The big question for the future is whether Alphabet will be able to move away from advertising revenue, grow new parts of the company — and be as innovative and resilient in the face of AI as it was 25 years ago.
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