For a second there, Google looked like it would fall behind.
It was OpenAI that released the first consumer-facing, generative-A.I.-powered chatbot last fall—despite how Google’s artificial intelligence team had long been “the envy of the tech community,” as my colleague Jeremy Kahn details in the latest Fortune cover story. In 2017, it was Google researchers who came up with the basic algorithmic design—an artificial neural network called a transformer—that would end up underpinning the generative A.I. boom. And in 2021, Google had created LaMDA, a chatbot with impressive dialogue skills, though the company had feared that releasing it would risk its reputation if it produced responses that were inaccurate or biased or “just be bizarre and disturbing,” Kahn writes.
But there was another problem: How would a chatbot tie in with the largest source of Google’s revenue—its advertising?
This is a question Google hasn’t quite answered yet—even as the company goes ahead with an A.I.-powered product release rampage this year: its ChatGPT competitor Bard, its Workspace writing assistant functions, its Vertex A.I. environment, and, as was announced at the company’s annual developer conference in May, new features for Gmail, Google Maps, and photo editing, as noted in Kahn’s story.
But if you compare notes between Google’s full search engine and what it calls its “search generative experience”—a very wordy descriptor for the “snapshot” answer to your search inquiry, paired with links and websites to corroborate it—the summarized answers or dialogue threads don’t seem to offer the same opportunities for ad placement or sponsored links—at least for now.
As Kahn writes:
With snapshot answers, people may be far less likely to click through on links. News publishers are particularly incensed: With its current LLM approach, Google essentially scrapes information from their sites, without compensation, and uses that data to build A.I. that may destroy their business. Many large news organizations have begun negotiations, seeking millions of dollars per year to grant Google access to their content. In July, the Associated Press became the first news organization to sign a deal of this kind with OpenAI, although financial terms were not disclosed. (Jordi Ribas, Microsoft’s head of search, told the audience at the Fortune Brainstorm Tech conference in July that the company’s own data shows that users of Bing Chat are more likely to click on links than users of a traditional Bing search.)
Of course, if people don’t click through on links, that also poses an existential threat to Alphabet itself. It remains far from clear that the business model that drives 80% of Google’s revenues—advertising—is the best fit for chatbots and assistants. OpenAI, for example, has chosen a subscription model for its ChatGPT Plus service, charging users $20 per month. Alphabet has many subscription businesses, from YouTube Premium to various features in its Fitbit wearables. But none are anywhere near as lucrative as advertising.
Elizabeth Reid, Google’s vice president of Search, told Kahn the company is “continuing to experiment with ads.” That would include things like placing ads in different positions for Google’s SGE page or building ads into answers. “Although,” as Kahn writes, “Google will have to figure out how to make clear to users that a given portion of a response is paid for.”
This will be after Google makes clear to advertisers what they're getting for their money.
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
Submit a deal for the Term Sheet newsletter here.
Jackson Fordyce curated the deals section of today’s newsletter.
