Remember life before Google (GOOG)? Me neither.
My whole adult life, any time I needed to know anything—a recipe, a fact, directions—I “Googled” it, just like billions of other people.
Google controls 90% of the search market. By selling targeted advertising to its billions of users, it arguably became the greatest business in history.
Google makes so much money, it’s able to outspend all other companies on R&D… incubate “moonshots” like self-driving cars (Waymo)… make big acquisitions (YouTube)… carry a bloated staff… and still have plenty left for fat 30% profit margins.
Imagine when all this cash starts flowing to other, much smaller companies…
Last week, Google smashed earnings (again). In the past three months alone, it’s raked in $65 billion selling ads.
But underneath the surface, artificial intelligence (AI) is undermining Google's search monopoly. Rapidly.
Lots of AI companies are attacking Google. But one small company is disrupting it the most. It’s a company Nvidia (NVDA) CEO Jensen Huang has raved about. And that legendary trader Stanley Druckenmiller has invested in.
This is how Google dies.
Imagine asking a friend about the best things to do in San Francisco.
They wouldn't hand you a stack of travel brochures and say, "Read these. The answer is in here somewhere."
But that’s essentially what Google does by giving you a page full of blue links.
|
You must click. Skim. Click again. Skim some more. Open six tabs. Try to piece together an answer from travel blogs, TripAdvisor reviews, and tourism websites.
That’s the difference between Google’s search engine and an AI “answer engine.” One gives you homework. The other gives you answers.
I used to be a Google power user, firing off dozens—sometimes hundreds—of queries a day.
But recently, I've barely opened Google at all. Instead, I’m using AI tools like Claude and Perplexity, and I'm not alone.
Perplexity is less than three years old and is already valued at $8 billion, with revenue jumping from $10 million to $50 million in just the past few months.
If you just want an answer to your question, Perplexity is hard to beat.
Instead of sending you on a scavenger hunt through the web, Perplexity is like a smart friend who's read all the books and tells you exactly what you need to know.
Remember Yahoo? Ask Jeeves? AltaVista?
There’s a long list of companies that were supposed to disrupt Google but failed to mount any real challenge. Even Microsoft (MSFT), with near limitless cash and talent, couldn't crack Google's 90% market share with Bing. All I see are dead competitors.
The key difference with Perplexity is it’s not trying to build a better Google. It's harnessing the power of AI to create something entirely new, a magic box that scans the entire web and just gives you the right answer.
For the first time in 20 years, Google faces a competitor that's moving faster, building better products, and riding the biggest tech wave of our lifetime.
Try Perplexity for a week, and you might never use Google again. It’s a superior product.
Legendary investor Stanley Druckenmiller recently told CNBC why he invested in Perplexity: "It's unbelievable. It's an answer machine. Nothing like I've ever seen." Druck said he now uses Perplexity for 90% of his searches.
Jenson Huang recently said in an interview, “Any random question [I have], I’ll be asking Perplexity… I love using it.”
All the people I know who use AI the most have ditched Google for Perplexity.
The vibes in these groups are, “You’re still using Google Search? Get with the times.”
These people are ahead of the curve. What they do today… the masses will be doing in six months.
Its $250 billion advertising empire will take longer to crack.
Google remains the homepage of the internet. Billions of people "google" things out of pure habit. Behaviors take time to change.
I can see Perplexity or OpenAI’s “SearchGPT” stealing some ad dollars away from Google. But Google will still dominate the online ad market for another few years.
What will slip away first is Google's legendary profitability.
|
Express Trader is temporarily re-opened! OFFER CLOSES TOMORROW. |
Google's current model is free for users. They click links, and Google collects advertising gold.
But as we’ve discussed, AI hoovers up much more computing power than traditional software. Amazon (AMZN)… Google… Meta Platforms (META)… and Microsoft will spend roughly $180 billion this year alone building AI data centers.
Read: Google’s expenses will skyrocket.
At the same time, if Google wants to transform into an “answer engine” to stay competitive, it must sacrifice sales. Straight answers mean fewer opportunities to sell ads. You can't sell clicks when there's nothing to click.
Google must either:
In other words, Google must disrupt itself.
Is it willing to take the short-term pain to stay ahead? I’m not so sure.
Now, millions of people are using AI answer engines like Perplexity.
Imagine what this race will look like as AI rapidly progresses? Searching for an answer will seem as outdated as using a paper map for directions.
The reign of the blue links is ending. The age of AI answers has begun.
You can’t invest in Perplexity yet, as it’s a private company. But there are many ways to profit from the AI boom. In Disruption Investor, we’re investing in the companies capturing the hundreds of billions of dollars of AI spending. Join us here.
Quick final note: Going forward, The Jolt will be published every Monday and Friday.
In my Monday editions, I’ll focus on big, important ideas—just like today’s and my recent piece on Tesla (TSLA), which you’ve sent great feedback on.
This change will allow me to provide even more focused insights and analysis. That way, you’re fully equipped and have all the knowledge you need about these world-changing disruptions and opportunities.
Stephen McBride
Chief Analyst, RiskHedge