Google’s June results were the second consecutive quarter of accelerating revenue growth, up 5% vs up 3% in March and up 1% in December. Search, which is just under 60% of revenue, grew at 5% vs up 2% in March and down 2% in December.

In other words, Google’s favorable results were powered by Search, a reassuring fact given concern that the hype around Microsoft’s Copilot-powered Bing would start to show cracks in Google’s 90% plus global search market share (excluding China and Russia). Despite the strength, questions still remain about Google’s ability to maintain its search lead, which I’ll discuss below.

While the company does not give guidance, based on comments from the earnings call, I believe they are on track to reach Street expectations for 2024 revenue growth of 11%, which is up from 5% in the just-reported quarter

CEO Sundar Pichai’s message on the earnings call outlined the company’s leadership in AI and their optimism about the “evolution of Search.”

He emphasized that their upcoming Search Generative Experience (SGE) that they previewed at their May developer conference will “make Search even more natural and intuitive.” He added that feedback from users who are testing the new platform has been “very positive so far.”

In terms of investing in AI, CFO Ruth Porat reiterated comments made in the March quarter that they expect higher levels of investment in technical infrastructure through the back half of 2023 and that pace will quicken in the back half, as investment pace in the first half was slower than they expected. Similar to comments made by Meta, Google also expects those investment levels to increase in 2024, which is par for the AI course.

The specific areas of investment include proprietary TPUs, GPUs, and data center capacity.

Before we jump into SGE, it’s worth noting the company has been clear that ads will continue to be a key part of the new Search experience. That’s to be expected as about 90% of Google’s business is somehow related to advertising (including Search, Youtube, Ad Exchange, and others).

Spoiler alert: the Search experience you know well is going to meaningful change over the next year. SGE is available in Google Labs for testing, which means we should start to see it in our daily search results later this year or early next year.

SGE’s engagement unlock is to increase usage by going beyond what Google Search gives people today. The new experience will “weigh multiple factors and personal preferences before making a purchase or booking a trip . . . that allow users to go deeper to learn about a topic.” This is the concept of personalized AI, something that Google should capitalize on with their 20 years of search data and understanding of how we think, buy, and where we go.

SGE will also add creativity and productivity, similar to how people are using ChatGPT for generative AI.

The new search results paradigm will have a greater distinction between types of search queries. Information queries (who is Abraham Lincoln?) will look the most different with a tiles-based approach. Commerce queries (coffee shops near me) will be a mix between tiles and some buy links. Navigation queries will likely change the least.

At the bottom of the results will be buttons to go deeper on a topic or activity with the goal of keeping you in Search.

While the frequency of the standard blue links will decline, the probability the company will grow faster for longer should increase.

In 2017, Google shifted how it communicated its focus to investors from “organizing the world’s information” to an “AI-first” company. That year, they mentioned “AI” and “machine learning” an average of 23 times on each of their quarterly conference calls. On the most recent earnings call the number climbed to 53 times. It’s been clear for seven years that Google sees itself as an AI-first company. Being first does not equate to winning long-term, but it does lay the groundwork for talent that can build products around AI models that pave the way for Google to be a mega AI winner.

To put Google’s AI opportunity into perspective, wind the clock back a decade and consider the shift from desktop to mobile. At the time it was unclear what that would mean for Google’s Search business, and in the end, the number of queries went up dramatically for a decade while the price per click declined. Ultimately, the greater engagement from 2010 through 2019 far outweighed the lower pricing and powered average revenue growth of 21% per year, with a low point of 14% (2015) and a high of 29% (2011). If you’re curious, 2019 revenue grew at a respectable 18%.

I expect AI-powered Search to power another decade of solid growth for Google.