Both Alphabet and Microsoft featured AI heavily in their Q1 2023 earnings calls. Before Alphabet’s call began streaming on YouTube, attendees were shown a video about Bard, Google’s AI chatbot. During the call, “AI” was mentioned 51 times. During Microsoft’s, it was mentioned 34 times. For Alphabet, AI’s references related to PaLM, its competitor to GPT-3, and Performance Max, its campaign type prioritizing performance over transparency, along with cloud-related use cases. During Microsoft’s call, AI related to Bing’s and Edge’s AI-powered capabilities, along with use cases for developers.

AI, a popular and persuasive rhetorical device, can’t combat the chilling effect of macroeconomic uncertainty on ad budgets. In Q1 2023, Alphabet experienced its second consecutive decline in ad revenue. Alphabet’s resilient search ads (due to advertisers’ ability to verify their revenue impact) couldn’t offset declining ad revenue from YouTube and the Google Display Network. No amount of “AI product features,” which Philipp Schindler, Google’s chief business officer, promised more of during the call, will persuade CFOs to authorize bigger budgets amid mixed macroeconomic signals. Likewise, Microsoft’s advertising business grew at the lackluster rate of 3.4% despite higher search volume from Bing’s association with AI, synergies between Microsoft’s audience network and Xandr, and LinkedIn’s continued growth. At the beginning of the year, Amy Hood, Microsoft’s CFO, forecasted low single-digit growth in Microsoft’s ad business, which will persist as long as consumers and marketers remain cautious about the economy.

Despite temporarily weak ad businesses, both companies are significantly accelerating the integration of generative AI into their search engines. Much has been hypothesized about generative AI’s impacts on the workflows of search marketers, but little has been said about these realities:

  • Conversational search’s commercial value is currently limited. According to OpenAI, Microsoft’s partner and competitor, models like ChatGPT interact “in a conversational way” by responding quickly and in detail to users’ prompts. They answer follow-up questions and even admit mistakes. However, they’re not conducive to commercially valuable searches like shopping or seeking directions to a store. Instead, they induce zero-click, upper-funnel searches. Like voice search was a few years ago, conversational search is in vogue but not yet lucrative. For now, Alphabet’s and Microsoft’s integrations of generative AI into their search engines are PR magnets, not cash cows.

Stay tuned for our report about how to augment marketing and advertising capabilities with generative AI and, if you’re interested in connecting with me, click here to set up a guidance session.