Microsoft sees AI shaking up search while Google calms investors

Satya Nadella, chief executive officer of Microsoft Corp.

Alphabet Inc.’s Google and Microsoft Corp., whose quarterly earnings each got a boost from their established search and cloud-computing businesses, used their time with investors to emphasize what’s next: artificial intelligence.

In their respective earnings calls on Tuesday, the tech giants, which are becoming rivals in the competition for the future of search, offered up starkly different assessments of just how much disruption is in store for the market. Google executives encouraged investors to trust in the company’s long track record as the world’s leading search engine, and framed AI as just another shift in its constantly evolving business. Microsoft suggested that something much more dramatic is underway.

Investors seemed to like Microsoft’s thesis better, sending its shares up as much as 9.7% in extended trading, while Alphabet increased less than 2%.

Until recently, Google was viewed as all but invincible in the market for online search, which it dominates worldwide. That changed with the debut of OpenAI’s wildly popular chatbot, ChatGPT. Microsoft has begun weaving OpenAI’s technology into its Bing search engine, and the partnership has ratcheted up pressure on Google to reinvent its core search business to allow for more of the conversational exchanges that generative AI makes possible.

Speaking to analysts, Alphabet Chief Executive Officer Sundar Pichai stressed that Google is investing heavily in AI, yet he downplayed what the technology would mean for the search advertising business, which remains the company’s lifeblood. He expressed optimism that users will continue to value online advertising even if their searches yield a summary composed by a large language model, rather than the familiar list of links that Google has long delivered.

“Throughout the years, we have gone through many, many shifts in search,” Pichai said. “And as we have evolved search, I think we’ve always had a strong, grounded approach in terms of how we evolve ads as well.”

Yet Microsoft CEO Satya Nadella suggested his company is a formidable challenger. He said app installations have quadrupled since the launch of the AI-powered Bing in February. He added that Bing took share in the US market in the quarter, without offering specific metrics.

“We look forward to continuing this journey in what is a generational shift in the largest software category — search,” Nadella said on the company’s earnings call.

Billions of dollars in revenue could be up for grabs with even relatively small changes in market share. But in the past quarter, at least, Google’s search business appeared to be weathering the heightened competitive threats and a broader downturn in the digital advertising market. The company’s revenue from search and related businesses rose to almost $40.4 billion in the period ended March 31, besting analysts’ estimates.

As Google moves to incorporate generative AI into search, Pichai said the company would draw on its institutional knowledge. “We’ll be guided by data and years of experience about what people want and our high standards for quality,” Pichai said. “And we’ll test and iterate as we go because we know that billions of people trust Google to provide the right information.”

Yet the company has ample reason to be worried, said Max Willens, an analyst at Insider Intelligence.

“Google’s core business is facing the most serious challenges it has encountered in quite some time,” Willens wrote in a note.

Google’s partnerships with manufacturers of Android phones present another opportunity for Microsoft to gain ground. Yet there, too, Pichai suggested that Google’s long track record will win the day.

“When we work with our partners, we work hard to create a win-win experience,” Pichai said. “And ultimately, partners end up choosing us because that’s what their users want.”