Google’s AI mode could be the first profitable AI chatbot

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At its annual developer conference, Google I/O, Google (NASDAQ: GOOGL) announced a new product that it hopes to increase its market share in artificial intelligence (AI). The product, called AI Mode, integrates AI directly into Google Search, the company’s flagship product that generated nearly $200 billion last year, which is more than half of its total sales.

The update may sound minor, but it’s likely to greatly impact the AI industry. It could pull users away from other AI apps and services and funnel them directly into Google’s integrated AI chatbot for Google Search. In addition, by the way, things are shaping up, AI Mode might end up being the first AI product on the market to turn a real profit.

What is AI mode, and how does it work?

AI Mode is a new feature added to Google Search. It’s essentially an AI chatbot directly built into Google Search, allowing users to ask longer, more detailed questions and get direct answers back, along with a curated list of relevant links related to the question.

Compared to combing through ten blue links or jumping between forums and blogs in search of the answer to their question, AI Mode is a more efficient way to search. It takes the guesswork out of finding the correct answer and allows the user to ask follow-up questions that go deeper into the topic.

For Google, the addition of AI Mode is crucial. Without it, Google Search, its most important product, was starting to show signs of slipping. People were opting to use AI chatbots like ChatGPT instead, drawn in by the speed and convenience of AI-powered search, and that shift started to look like a real threat to Google.

Google Search was slipping, and investors noticed

On May 7, Alphabet’s stock dropped nearly 7% after Apple (NASDAQ: AAPL) executive Eddy Cue testified that, for the first time, Safari searches, which default to Google Search, declined in April because more users were starting to use AI-powered tools to search, bypassing traditional search engines altogether.

Although this was only one facet of Google Search decline, it was a strong signal to the market that users’ search preferences were changing, and if Google didn’t respond quickly, that small crack could turn into a much bigger one that could result in Google losing its grip on the product that made the company so dominant (Search).

Google’s AI mode is already built to make money

“For example, someone may use AI Mode to search ‘how to build a website for a small business with limited resources.’ They’ll get a comprehensive response with a step-by-step guide, tips and tricks on how to choose a product, connect with their audience, all the way to testing and launching. In some cases, a website builder might be a good next step, so we may show a helpful ad that can help them get started,” said Google, reinforcing the idea that Google is taking something it already knows how to monetize and placing it inside its newest product.

This alone sets Google’s AI Mode apart from other AI companies currently struggling to profit. Running large language models (LLMs) is expensive. Training, deploying, and maintaining them requires massive amounts of capital, which is why these companies are raising billions just to keep the lights on.

Despite the huge sums being spent, none of the major players have cracked profitability yet. Although some generate revenue through subscriptions or by selling access to their APIs, it’s not nearly enough to cover their costs. Recently, it was revealed that OpenAI expects to lose $44 billion cumulatively between 2023 and 2028. And they’re not alone. Almost every major AI company is in the same boat. On top of that, they are beginning to be pressured by investors who are asking when the returns are coming. Many companies aren’t expecting to profit from their AI operations until the end of the decade at the very minimum.

Google, on the other hand, probably won’t find itself in that situation. To be fair, AI Mode is just one of the many AI apps and services the company offers, but they’ve already figured out how to monetize. Rather than trying to find its way to profitability for the very first time like many of the AI companies in the market are doing, Google is just applying what they already know makes money into its new search interface.

AI Mode helps Google protect Search

Undoubtedly, AI threatened Google Search, which caused the company to spring into action. Google didn’t add AI Mode just to stay relevant; they did it to protect their cash cow. Google may have followed the old adage, “If you can’t beat them, join them,” when it added AI into Google Search, but that’s because if Google Search were to take a hit by losing market share to its AI competitors, Google’s advertising revenues would be impacted, which could have a significant impact on the financial health of the company.

At the same time, adding AI into Search puts Google in a much stronger position than before. AI Mode gives Google a real shot at pulling users back in and taking market share from other AI platforms, and unlike most of those platforms, Google has the infrastructure to make its AI product profitable from day one.

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