“When I look at where computing is headed, it’s clear to me that we’re evolving from a mobile-first to an AI-first world.” - Sundar Pichai, Google CEO
I’m watching the “Made by Google” launch event and wondering why the Silicon Valley search giant suddenly decided to roll out a bevy of branded devices: Pixel smartphones, Home digital assistant, Chromecast Ultra streaming TV and Daydream virtual reality headset. There’s plenty more to come, I’m sure.
Of course, Alphabet chief executive Larry Page and Google CEO Sundar Pichai didn’t just wake up one day and say, “Let’s become an integrated device company.” This is clearly part of a long-term strategy, but it is an enormous strategic shift, nevertheless. The question is why?
Then it hit me: This is not an offensive move but a defensive one – an attempt to thwart an existential threat with the potential to blow up the company’s business model.
At the event, Pichai said, “It’s clear to me that we’re evolving from a mobile-first to an AI-first world.” Indeed, AI – more specifically, deep learning AI – is a disruptive core technology capable of transforming the competitive landscape. And Google is more likely to be disrupted than a disruptor in that transformation.
Deep learning is when there’s enough data and computers are powerful enough to program themselves. Gone are the algorithms Google uses to power search queries. With deep learning, computers write their own code. They figure it all out for themselves based on enormous amounts of data. And that renders Google’s algorithmic-based programming obsolete.
We are currently in the early stages of a transformation from algorithmic to AI-based queries. Let’s call the latter Smart Search. The problem is, Google makes 90% of its revenue off search advertising. The question is, what happens to that revenue stream when today’s text-based search becomes subsumed under voice-based Smart Search queries? What happens to the ads? That’s right, they disappear, along with the text.
Granted, you can have voice-based ads, but they’re not nearly as effective as text-based ads because voice is streaming. Since you can’t listen to two things at once, you can’t see the results and ads simultaneously as you would with text. And nobody wants to sit there listening to an ad while waiting to hear the results of their query.
More important, Google’s smart Assistant will compete with the likes of Apple Siri, Amazon Alexa, and Microsoft Cortana, which don’t use ads. That’s simply not their business model. Google, on the other hand, is dependent on its dominance in search advertising. Eventually, that dominance will break down – and it’s beginning to look like eventually is coming sooner than anyone thought.
The deep learning AI revolution is developing very quickly. Microsoft, Facebook, Apple, Amazon and Google are all scooping up startups, hiring talent and starting projects by the thousands. Which means the competitive landscape for Smart Search is up for grabs. And may the best AI platform win.
That will not happen all at once, of course, and it’s certainly not an “all or nothing” scenario. Users will still do text-based searches on their devices. But over time, they’ll be doing more and more queries verbally, and listening to responses that don’t have ads. Which means Google’s enormous ad revenues and profits will come under pressure.
There is one more factor, however. Augmented reality is coming, and when it does, all our screens will disappear. We’ll interact with the computing world in a more human or visual way. That’s when ads will return. In the interim, Google will face an increasingly competitive Smart Search environment made up of at least three or four AI query platforms.
Keep in mind that Google’s business interests are not necessarily aligned with those of Samsung, Xiaomi and other Android device-makers. That’s why it needed to develop and brand its own mobile devices which, incidentally, are made by Taiwan’s HTC.
As for Google’s decision to go up against Apple’s venerable ecosystem, that was an easy call. Facebook dominates in social media. Amazon dominates in retail. Microsoft dominates in corporate. The only viable strategy was to leverage its Android platform and take on Apple in the consumer device space.
It’s been a long time coming, but Google and Apple are finally, unquestionably, head-to-head competitors. You have to laugh at the irony.
When the FCC forced then-Google CEO Eric Schmidt off Apple’s board, he claimed that his company was not an iPhone competitor. That was in 2009, nearly two years after Android magically evolved from a Blackberry-like device with a physical keypad into practically an iPhone clone.
Steve Jobs would later vow to “spend every penny of Apple's $40 billion in the bank, to right this wrong,” he said in Walter Isaacson’s biography. “I'm going to destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this." If he were alive today, I doubt if Jobs would find Google’s new strategy the least bit funny.