The Bold Prediction
“Search Engine Volume Will Drop 25% by 2026″ – this prediction by Gartner, a renowned technological research and consulting firm, has wide-ranging impacts on Alphabet’s (parent company of Google) search business and the economic potential of artificial intelligence.
Why is Gartner’s prediction so significant?
In the fourth quarter of the fiscal year 2023 (Q4 FY23), Google reported over $48 billion in revenue from search advertising alone, more than half of its total quarterly revenue. Annualized, that’s nearly $200B in revenue, per year for Google’s search business, a market the company dominates with around 90% market share.
A 25% decline in search volume would not only be a direct hit to Google’s top line, taking a potential $50B or more out of Google’s annual revenue, but it would also open up avenues for competitors to capture billions of dollars through AI-based query monetization to further erode Google’s market share.
This bold prediction by Gartner follows their previous view that by “2028, brands’ organic search traffic will decrease by 50% or more as consumers embrace generative AI-powered search.”
So, who is poised to capture the generative AI-powered search market?
The Rise of Perplexity
Perplexity is an AI-powered search tool that is quickly gaining traction among users.
The company brands its technology as an “AI-powered Swiss Army Knife for information discovery and curiosity.” Users can ask Perplexity questions in natural, everyday language and receive a well-cited and typically direct answer in response. Perplexity also has a tool called “co-pilot” that helps hone the answers and allows Perplexity to have a back-and-forth conversation and ask questions to clarify your needs.
Nvidia CEO Jensen Huang has publicly endorsed the tool, saying he uses Perplexity AI ‘almost every day’.
Screenshot of Perplexity’s web interface.
Perplexity’s approach to AI and search is innovative. The platform combines natural language processing with machine learning to deliver precise answers to queries with copious citations. Unlike traditional search engines that provide a list of links, Perplexity aims to give a direct answer, making the search experience more intuitive and efficient.
Investor Interest in Perplexity
With a ringing endorsement from Nvidia CEO Jensen Huang, there’s no question why people are interested in investing in Perplexity. The company also continues to pen key partnerships, including one with AI unicorn ElevenLabs to launch The Discover Daily podcast, a collaboration that marries ElevenLabs’ state-of-the-art voice technology with Perplexity’s powerful search and content engine, offering a unique and accessible way to stay informed about the world’s most exciting developments.
Investors really started to take note in early January after the company raised $73.6 million in a series-B funding round led by Nvidia, Jeff Bezos, and other investors.
Grace Chen, founder of UpMarket, highlighted the overwhelming demand for Perplexity on the secondary market, “Demand for Perplexity has been astounding. In a very short window, we have had hundreds of investors inquire looking to buy shares in Perplexity.” UpMarket helps accredited investors buy shares in private companies like Perplexity, OpenAI, and SpaceX along with hedge funds and other alternative assets. Chen added, “Artificial intelligence continues to be an extremely active space for private investment and we are excited to help UpMarket investors tap this growing market.”
Generative AI: The New Front in Search
Gartner’s forecast of search engines losing traffic to generative AI tools like ChatGPT and Claude aligns with the narrative that users are increasingly turning to these AI platforms for information traditionally sought from search engines.
Opportunity for Perplexity
With Google’s massive $48 billion in search advertising revenue at stake, the opportunity for Perplexity is significant. But it will not be without a fight.
Early signs of Google’s concern are evident – for instance, there were reports that the tech giant offered a 4x salary increase to retain an employee and keep them from joining Perplexity AI. This may indicate the continued talent war in AI, suggesting that Google is prepared to use its significant resources to maintain its dominance in search.
Perplexity in the News
Recent news headlines have also spotlighted Perplexity’s advancements and partnerships. SK Telecom has partnered with Perplexity to enhance AI search capabilities, while AWS has featured Perplexity at its re:Invent 2023 event, emphasizing the tool’s potential in cloud-based AI solutions. Furthermore, Perplexity has also launched an AI-generated daily news podcast, showcasing its innovative use of AI to curate and disseminate information.
Conclusion
As AI continues to evolve, it’s clear that the search landscape is on the cusp of significant change. With platforms like Perplexity on the rise, and traditional giants like Google defending their turf, the next few years will be crucial in determining the future of how we find information online. For investors, its likely that some of these small startups might end up becoming the Googles of the future. As the industry observes this shift, one thing is certain – the potential for AI to disrupt search is immense, and Perplexity is a name to watch.