Google´s Earnings Surge as AI Now Powers 25% of New Code and Monopoly Lawsuits Loom

Google’s AI advances contribute to record earnings, though antitrust lawsuits and competitive pressures pose growing challenges to its search dominance.

Google has disclosed that artificial intelligence is now responsible for generating over a quarter of the code in its products, a milestone that underscores AI’s expanding role in driving revenue for Alphabet Inc.

The announcement coincides with Google’s $88.3 billion third-quarter earnings, boosted by AI-focused products, even as the company confronts growing legal scrutiny over its dominance in the search and ad markets. CEO Sundar Pichai highlighted the benefits of AI during the earnings call, noting that this technology has improved efficiency across Google’s ecosystem, from search and cloud services to the Pixel 9 series.

AI Powering Google’s Growth in Products and Cloud Revenue

With more than 25% of Google’s new code now generated by AI, the company is seeing a notable impact on its product line. Google’s large language model, Gemini AI, is a critical component of this growth, driving innovations like Google Meet’s automated note-taking and new content creation tools for YouTube.

These AI capabilities are also embedded in Google’s Pixel 9 series and integrated into cloud-based solutions for enterprises. Google Cloud revenue, fueled by these AI services, reached $11.4 billion, a 35% increase over the previous year, while Search and YouTube’s combined services grew to $76.5 billion.

Pichai explained that Google’s cloud platform and AI infrastructure provide customers with tools to build their own machine-learning models, particularly through Vertex, an AI-focused service that enables companies to analyze data and train models on Google’s cloud. Notable adopters, including LG AI Research, have leveraged Vertex to cut operational costs, reducing the time needed to process models by 50%.

Rising Legal and Antitrust Challenges

While Google’s AI investments yield high revenue, the company faces mounting legal pressure. In August, Judge Amit P. Mehta ruled that Google has maintained an illegal monopoly in search and ad markets, leading to potential remedies that could include separating certain Google services.

In response, Yelp filed its own lawsuit, alleging that Google unfairly directs traffic to its local services, hindering competitors. According to Yelp’s CEO Jeremy Stoppelman, Google’s influence restricts choices for advertisers and drives up costs, making it difficult for competing platforms to grow.

The latest lawsuit comes following a recent ruling that could potentially be historic. US courts earlier this month found Google guilty of monopolistic practices. Among the potential outcomes from the ruling could be to break up the company

The decision for the wider DoJ investigation was made last September and could have a huge impact on Google and its parent Alphabet. Last year, the DoJ accused the company of destroying evidence by deleting chats between employees. In November 2022, Google agreed to pay hundreds of millions of dollars to 40 states in the biggest anti-trust settlement in U.S. law.

Google argued that the failure of rivals such as  Bing was not down to its own practices but rather the failures of Microsoft. The trial also looked into Google’s search ad practices. As we reported in September, the DOJ alleges that Google’s market dominance allows it to hike ad prices without significant consequences. This claim is substantiated by Jerry Dischler, a Google ads executive, who testified about the company’s ad pricing strategies.

This legal scrutiny echoes Microsoft’s complaints, with CEO Satya Nadella testifying that Google’s substantial payments to Apple—estimated at up to $20 billion per year—sustain its monopoly status on iOS devices. Nadella noted that even though Microsoft offered competitive terms, Google’s default search arrangement prevented Bing from gaining traction, raising questions over Google’s claims that these payments promote competition.

AI Overviews and the Publisher Backlash

Among the new AI-driven tools is Google’s AI Overviews, a feature that places AI-generated summaries at the top of search results, potentially reducing click-through traffic to external websites. Powered by Gemini, these AI summaries generate concise answers to complex search queries, presenting users with Google’s own interpretation of web content.

However, many publishers argue that this feature effectively diminishes their visibility, as users may rely solely on AI summaries without clicking through to original sources. Google’s Gemini bot, which doubles as its search indexer, complicates the issue: any attempt to block it would impact a publisher’s overall search ranking.

As AI Overviews become available in over 100 countries, Google has been careful to frame these tools as beneficial for users by delivering “immediate insights,” but publishers and smaller content creators face difficult choices as AI encroaches on traditional search traffic.

Competition from TikTok and AI-Powered Startups

TikTok’s recent decision to allow brands to target users based on search terms introduces a new challenge to Google’s ad revenue. The development has attracted interest from beauty and consumer electronics brands, lured by TikTok’s younger, highly engaged audience. With daily search volumes exceeding 3 billion, TikTok is gaining momentum as a preferred advertising platform, especially among younger consumers seeking quick video content.

Amazon’s rising share of search ads, which reached 22.3% in 2023, is another factor. Many consumers now begin product searches directly on Amazon rather than Google, further reducing Google’s share of ad dollars. AI search startup Perplexity, meanwhile, has introduced a revenue-sharing model for content creators, allowing advertisements within conversational AI answers, a move that enables it to capture a slice of the growing AI-based search market.

Leadership Shake-Up as Google Faces Pressure

As Google adjusts to external competition and legal action, internal leadership has also shifted. This month, Nick Fox took over as head of the company’s search and ads division from Prabhakar Raghavan, who oversaw Google’s controversial monetization push.

Raghavan’s tenure saw a shift in focus toward ad revenue, which some employees claim compromised search quality by favoring monetized search results over user satisfaction. In emails revealed in the DOJ case, Ben Gomes, an engineer instrumental in building Google Search, opposed Raghavan’s approach, warning that prioritizing profit could harm long-term user experience.

With over two decades at Google, Fox now faces the challenge of steering Google’s search and ad divisions through a highly competitive market, while balancing revenue generation and maintaining search quality. Raghavan, who has now stepped into the role of chief technologist, will continue to influence Google’s technical direction, but his focus will shift away from day-to-day operations in search and ads.

Last Updated on November 7, 2024 2:16 pm CET

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Luke Jones
Luke Jones
Luke has been writing about Microsoft and the wider tech industry for over 10 years. With a degree in creative and professional writing, Luke looks for the interesting spin when covering AI, Windows, Xbox, and more.

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