Google's Search Monopoly Under Fire

Investment Note #27 - 23rd May 2025

Google’s Search Monopoly Under Fire

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‘Focus on the user and all else will follow’ - this was one of Google’s two founding principles (the other one was ‘Don’t be evil’). If a user wanted to find out who Mayo is playing next and when, is Google Search the best destination? No, users get a better experience with one of the Large Language Model (LLM) powered search alternatives like ChatGPT, Perplexity, and Grok. Google Search, once the gold standard for finding information online, is now widely criticised for delivering increasingly poor results. This decline is not just anecdotal - multiple independent studies and user surveys confirm that the quality, relevance, and user experience of Google Search has deteriorated in recent years.

The New Search Frontier: LLMs vs Google Search

Google's search business remains the cornerstone of Alphabet's financial success. In 2024, Alphabet generated $350bn in revenue, with Google Search and other search-related services contributing approximately $200bn or 57% of the company's total revenue (source: Visual Capitalist). This level of revenue is linked to its commanding market share; Google still has c. 90% of global search engine traffic (source: Proceed Innovative). However, for the first time in over a decade Google's market share has fallen below 90%, suggesting some incremental competitive pressure.

AI-powered search alternatives are gaining traction, and studies indicate that many consumers have tried these tools, even if they haven't become their default option. There also appear to be generational differences, as 59% of Gen Z use it for at least half of their searches compared to 17% for Baby Boomers (source: You Gov).

We could be at the beginning of a fundamental change in search behaviour from "link-based" to "answer-based" results. Users may increasingly expect direct answers rather than sifting through multiple websites. This change would put pressure on Google's search advertising model as advertising revenue decreases when users get immediate answers without clicking through to websites.

Search Quality Deterioration - Where Did All the Good Results Go?

A 2025 study by SEO.ai found that Google’s top-ranking pages are now saturated with highly optimised but low-value content and, ironically, AI-generated content. Despite ongoing algorithm updates, filtering this out of search results isn't easy, and improvements are often temporary. A study by WalletHub revealed that 63% of Americans believe Google’s search results were better in previous years. Users now regularly encounter irrelevant results, forcing them to refine their searches or click multiple times, increasing frustration and reducing the overall experience.

Did something change within Google? Internal emails released during the Department of Justice’s antitrust case against Google, revealed a corporate battle between the ads and search teams. Many believe that the ads team won this internal struggle, and Google Search has become increasingly driven by ad revenue metrics and less by the quality of its results or the user experience.

Additionally, AI may have worsened the internet because it has flooded it with low-quality, misleading, and repetitive content. Has this made Google’s job more difficult, such that AI must now be deployed to search the internet effectively?

Google’s Response

Google isn't standing still. The company is heavily investing in AI integration within its search products. From a user perspective, the most obvious sign of this is the introduction of AI Overviews, which are AI-generated summaries at the top of search results. Indeed, just this week, they announced the launch of ‘AI Mode,’ a conversational, question-and-answer experience akin to ChatGPT. These are attempts to provide the direct answers users seek while maintaining control of the search experience.

Given the scale of Google's resources and its level of AI infrastructure investment, $150bn over the last five years (source: Visual Capitalist), it would be foolhardy to discount its ability to respond to this competitive threat. User habits are deeply entrenched, and if Google can integrate AI functionalities into the Google Search experience, users may not need to go elsewhere.

Interested readers can hear directly from Sundar Pichai, CEO of Alphabet, on a recent episode of the highly popular All-In podcast on how the company is responding to the threat of AI. His comments were somewhat unconvincing, and while Pichai discounted it in the episode, there may be a case of the ‘Innovator’s Dilemma’. This is the concept that highly successful companies can lose their market leadership or fail when faced with disruptive innovations. This often stems from the fact that the organisational structures that make incumbents successful also make it more challenging to identify potentially disruptive technologies.

Summary

If Google hadn't dropped 'Don't be evil' as one of its founding principles, it could have changed it to 'Don't be evil unless there's ad revenue involved', given how sponsored content now dominates search results. Has the user search experience been sacrificed for ad revenue maximisation?

ChatGPT has 400 million weekly active users (source: Reuters), and there are less reliable indications, based on recent Sam Altman comments, that this may have increased to 1 billion (source: Forbes). What proportion of these users use it as an alternative way to search the internet?  Everyone, (Investment Note #15)  is waiting for the arrival of the killer AI app but is AI as the killer of traditional search already here. 

AI capital expenditure for the four big hyperscalers (Alphabet, Microsoft, Amazon and Meta) is projected to be $600bn in 2025 versus $440bn in 2024 (source: JP Morgan Asset Management). The ability to monetise this expenditure will be a key focus of equity markets in the coming years.