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“Stephen, I’m afraid you sound like your ‘favorite’ magazine—The Economist—on this one...”
A RiskHedge reader wrote me after I laid out why Google is about to be disrupted in a major way.
I’ll quickly recap my argument…
Google is the most-visited website in the world. It processes 8.5 billion searches per day. Eyeballs = money in the marketing world. This is why Google rakes in the most ad dollars of any business on Earth.
But now, ChatGPT—which gained 100 million users in just two months—is coming for Google’s crown.
RiskHedge reader Guerton disagreed…
“It is Google—one of the most innovative companies on the planet—we are talking about here. Sure, it’s received a wake-up call... a shot to its bow. But it will respond.
Google is the reigning king of AI… It will remain in my portfolio for the foreseeable future.”
Thank you, Guerton. Now, let me respond...
1. Did the perfect stock market indicator strike again?
Earlier this year, I wrote about how it usually pays to do the exact opposite of what The Economist’s cover stories suggest.
When The Economist writes a glowing story about a certain asset or country, it’s usually time to sell, and vice versa.
In February, a robotic hand pulverizing Google’s logo appeared on the cover:
Google’s stock looks like it bottomed less than two weeks later:
Having the same view as an Economist cover story makes me nervous. I’m breaking my own rules! But I’m confident Google’s heyday is behind us.st
2. Is Google really one of the most innovative companies on the planet?
Google gives off vibes it’s a cutting-edge innovation hub.
It has cool offices with rock climbing walls and beanbags. It allows employees to spend 20% of their time working on personal projects. And its “moonshot” division is plowing billions of dollars into self-driving cars and delivery drones.
But cut through all the noise, and you’ll see Google is basically a giant ad network.
Roughly 80% of Google’s sales come from selling digital ads.
Google built or acquired many great products we use every day: Google Search… Gmail… the Chrome browser… Maps… Nest… Android, which powers most non-iPhone smartphones… and YouTube.
But when was the last time it introduced a new service that really moved the needle for its business?
Google pioneered the idea of cloud computing… yet today, it’s a distant third behind Microsoft (MSFT) and Amazon (AMZN). Sales of its Pixel smartphones never really took off, either.
A portfolio manager once told me: “Google is the biggest underachiever I’ve ever seen relative to its competitive advantages.”
3. Ever heard of the “resource curse?”
Countries blessed with vast oil or mineral reserves tend to be places you wouldn’t bring your family on vacation.
In places like Venezuela, two roughnecks can drill a hole in the ground and produce enough “wealth” to feed the whole country. This is usually a poisoned chalice.
The modern-day version of this is two nerds grinding away in their parent’s garage who can write a couple lines of code, which then creates a trillion-dollar company.
I call it the “tech resource curse.” And Google is its most high-profile victim.
Google Search is likely the most successful product in history. Last year alone, it raked in $220 billion selling ads on the “internet’s homepage.” But this success made Google fat and lazy.
Instead of building great new products, it spent its time building rock climbing walls and chill-out pods for its employees.
In fact, a recent memo from ex-Google employee Praveen Seshadri shows us just how bloated the tech giant has become. In the note, Seshadri quipped:
“Google has 175,000+ capable and well-compensated employees who get very little done quarter over quarter, year over year.
Google has four core cultural problems. They are all the natural consequences of having a money-printing machine called “Ads” that has kept growing relentlessly every year, hiding all other sins. (1) no mission, (2) no urgency, (3) delusions of exceptionalism, (4) mismanagement.”
4. BREAKING NEWS: Google, reigning king of AI, has been overthrown.
For years, folks talked about how Google was the leader in artificial intelligence (AI).
It employed three-quarters of the top AI talent. It owns self-driving car leader Waymo. It literally wrote the paper that sparked the “generative” AI boom.
It even had an AI chatbot ready to go before ChatGPT.
More than two years ago, Google launched a ChatGPT-like system internally. Employees used it to debate philosophy and write screenplays in the style of Seinfeld.
Google developers pushed senior executives to release it, but they were scared. Why? The chatbot didn’t adhere to its AI safety standards. Executives were afraid the AI would say something wrong or “politically incorrect.”
Microsoft’s hiccup a couple years earlier put the fear of God into Google.
In 2016, Microsoft released an AI chatbot named “Tay” on Twitter, which was supposed to tweet like a teenage girl. It pulled the plug on Tay just 16 hours after its release due to “sexist” tweets.
Google cared more about cozying up to the politically correct mob than innovating. And because Search was generating so much cash, Google didn’t need to do anything. “We’re Google; we’re invincible.” This is the tech resource curse in action.
Google threw away its AI lead and now must worry about far more than sending a few mean tweets.
5. ChatGPT is coming for Google’s “homepage of the internet” crown.
Data from investment bank Barclays shows ChatGPT is stealing market share from Google “at an accelerating rate.”
Microsoft Bing, which runs on OpenAI’s tech, also gained market share.
And get this… The New York Times recently reported the world’s largest smartphone maker, Samsung, is considering switching from Google to Bing.
Upon learning the Samsung news, Google employees “reacted with emojis and surprise.” The tech resource curse runs deep.
What about Google’s ChatGPT competitor, Bard?
If you want reassurance Google blew its AI lead, give Bard a try. Having spent several hours playing around with both GPT and Bard, I’m more confident than ever “peak Google” is in the rear-view mirror.
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