Microsoft targets Google’s search dominance with AI-powered Bing

Rivals battle for technological edge as the search engine market faces its first big change for years

Microsoft’s use of the artificial intelligence used in ChatGPT to disrupt the internet search market is set to demolish the high profit margins that have underpinned Google’s core business, Microsoft chief executive Satya Nadella has predicted.

“From now on, the [gross margin] of search is going to drop forever,” Mr Nadella said. He was speaking as the software giant unveiled an overhaul of its Bing search engine to incorporate AI advances that have been sweeping through the tech world since the launch of ChatGPT more than two months ago.

Google is scrambling to make up lost ground since the arrival of ChatGPT, which provides text answers to complex questions directly rather than requiring the use of a traditional search engine. Google has said it would launch its own chatbot and add AI features to its search engine.

The use of language AI to supplement or even replace internet searches has raised the prospect of sharply higher costs for search companies. Mr Nadella said he was willing to accept any “demonetisation” of the search business, from which Microsoft last year earned $11 billion (€10.25 billion) of revenue, for the chance to eat into Google’s business.

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“There is such margin in search, which for us is incremental. For Google it’s not, they have to defend it all,” he added, referring to the competition against Google as “asymmetric”.

Google’s delayed response to ChatGPT has left Microsoft with a rare chance to claim a technological edge as the search market faces its first big change for years. Microsoft said its search overhaul was based on a new version of the language AI system developed by OpenAI, the San Francisco AI research group in which it recently announced a “multibillion-dollar” investment.

Mr Nadella acknowledged that Google would introduce its own AI-powered search products, calling it the “800-pound gorilla”, and said that users would have to decide which product they preferred.

Microsoft poured billions of dollars into challenging Google in the early days of search, but could not make a dent in its dominant position. According to Statcounter, Bing accounts for only 3 per cent of global searches, compared with 93 per cent for Google.

Microsoft this week has shown off a new version of Bing that it said would be available immediately to anyone using a desktop computer, though only for “a limited number of queries”. The overhaul includes a box running down the right-hand side of search results pages that seeks to draw information out of web pages returned in a search.

It also includes a chatbot, similar to ChatGPT, that can create travel itineraries or compare products, and a creation tool to generate emails and shopping lists based on search queries.

Mr Nadella claimed the changes marked the start of a new “race” in the internet search market that would disrupt “the largest software category on planet earth”.

“It’s a new day in search,” he said. “Rapid innovation is going to come, in fact a race starts today.”

Microsoft said that Bing users would, after their initial searches on the new system, have to join a waiting list to access “the full experience” of the service. It also said it planned to launch a mobile version and expand the service “to millions of people in the coming weeks”.

Google on Wednesday hosted an event in Paris where it announced several integrations of AI into search and mapping tools, including interactive 3D models of some cities including London and Los Angeles.

“Although we are 25 years into search, I daresay that our story has just begun,” said Prabhakar Raghavan, senior vice-president at Google. – Copyright The Financial Times Limited 2023