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Marcus Johnson (00:00):

Your audience is seeing ads everywhere, even on the screens you'd least expect. Believe it or not, Nielsen Ad Intel helps you see the whole picture, from creative trends to ad spend and media across all screens, all of them. Maximize every media dollar today with Nielsen Ad Intel.

(00:21):

Hey, gang. It's Friday, November 14th. [inaudible 00:00:23] And listeners, welcome to Behind the Numbers, an eMarketer video podcast made possible by Nielsen. I'm Marcus. And joining me for today's conversation, we have two folks, we have senior director of briefings living in New York, he is Jeremy Goldman

Jeremy Goldman (00:36):

Happy Pickle Day.

Marcus Johnson (00:40):

Oh, this is the worst one.

Jeremy Goldman (00:44):

What? It's a real day. I'm sorry.

Marcus Johnson (00:47):

I hate pickles so much. That's right, America.

Jeremy Goldman (00:51):

But you're normally as cool as a cucumber.

Marcus Johnson (00:54):

Thank you.

Yoram Wurmser (00:54):

Oh, boy.

Marcus Johnson (00:56):

It's going to be a rough episode. [inaudible 00:00:58] analyst and head of our media ad and tech teams based in New Jersey, Yoram Wurmser.

Yoram Wurmser (01:02):

Hey, Marcus. How are you?

Marcus Johnson (01:02):

Welcome to the show.

Yoram Wurmser (01:04):

Thank you.

Marcus Johnson (01:04):

Good. Today's fact, who invented the QR code? It's old, 1994. Denso Wave employee, Masahiro Hara was developing technologies to make Toyota's manufacturing process more efficient. Original barcodes used to track auto parts, it could only store a small amount of data and be scanned one at a time so Hara used a 2D matrix of black and white squares which allows barcodes to be scanned at an angle or a distance. And if you rip the corner off of one, you can still scan a QR code. Microsoft's website notes that Mr. Hara came up with the idea of QR codes whilst playing the game Go, which is basically chess times a thousand. It consists of a 19 x 19 grid with black and white stones placed throughout. If you Google "Go board" then you'll see the connection immediately because any top-down picture of a Go board looks like a QR code. And that's how the quick response, QR code was born.

Jeremy Goldman (02:08):

Wow. And only had to wait until around 2020 for them to really take off.

Marcus Johnson (02:14):

We had smartphones first so we could have scanners in our pockets and then a pandemic to get everyone to start using QR code. Yes.

Jeremy Goldman (02:20):

And then because of the pandemic, nobody asked him for his autograph. That's so sad.

Marcus Johnson (02:26):

It's true. But thank you to Mr. Hara, a genius invention. Anyway, today's real topic, the big three questions for Google right now.

(02:39):

Every quarter, we look at how the big tech players are getting on and we ask what are the three biggest questions surrounding said company, in this case Google. What are the three biggest questions for them at the moment? We're going to discuss my ranked list and then Yuri and Jeremy would tell me what they would change, if anything.

(03:00):

The first thing I have here, which I think is the biggest question surrounding Google at the moment, is OpenAI just launching its AI-powered web browser called Atlas. It's built around ChatGPT. Johana Bhuiyan, British newspaper, The Guardian, explains that ChatGPT Atlas, as it's called, is designed to provide a more personalized web experience and includes a ChatGPT sidebar that lets users ask questions about or engage with various aspects of each website they visit on this new browser. You've got the Atlas browser, which takes up most of the screen on my left, and then the ChatGPT sidebar on the right. You can ask it to summarize content of the website, compare products or analyze data from the site. There's also an agent mode for certain premium accounts, allowing users to ask ChatGPT to complete tasks from start to finish like researching or shopping for a trip. Atlas also has a memory feature that personalizes actions recommendations.

(03:56):

Yuri, I'll start with you. How much of a competitor to Google's Chrome is OpenAI's new browser, Atlas?

Yoram Wurmser (04:03):

Right now, not much. It's just a month or two old. I saw some numbers where 1.7% of enterprise Mac users had downloaded it probably to experiment with it. I don't think anyone is using it as their main browser. At the moment, I don't think it's a current competitor of any major stature. It could develop into one though and it really depends on how people embrace the idea having an agentic browser, a browser that has that column with a ChatGPT input and ability to browse on its own for products and information. We'll see how it develops. But right now, I don't think it's a serious contender.

Jeremy Goldman (04:48):

By the way, even though there is some kind of innovation baked into it, I think Yuri is totally right that a lot of people just to even download something, that's a victory in and of itself. But then you've got to change people's behavior and when you're really used to a browser... I use Safari on my phone and it's harder to get me, somebody who really appreciates Chrome, to download Chrome and then to use it and to put it in the right spot. There are a lot of things that have to change from a user experience standpoint just to change a user's behavior. It's so difficult to do even after you get them to download that I think that OpenAI will have to sink a lot into this initiative in order to give this a chance of being a meaningful browser in the long term.

Yoram Wurmser (05:34):

Yeah. And it's still clunky. I actually have not downloaded it myself but I've spoken to several people who have, and it doesn't actually work tremendously well on the agentic type of stuff that it's supposed to do.

Marcus Johnson (05:54):

Yeah. Yeah. A big question here seemed to be is it really that different from Chrome? Because OpenAI CEO, Sam Altman was saying that AI represents this once-in-a-decade chance to rethink the browser, hoping ChatGPT instead of traditional address bar or a search box will serve as the portal to the internet, Cade Metz of The New York Times. But Matteo Wong was questioning whether it's really that different. He was writing that OpenAI's bold attempt to rethink how people use the internet boils down to a fairly ordinary web browser that eliminates the already tiny amount of friction needed to navigate to chatgpt.com.

Jeremy Goldman (06:28):

Yeah, I think that's a really good point. And one thing that really can't be underestimated is that if there is a killer feature that winds up becoming part of Atlas' core user interface, it doesn't actually take that much for Google to just replicate that. And we've seen that for years of major companies such as Meta taking features from Snap or TikTok, you do those things and then you perfect them. And in the end, the user doesn't really care who originated it. For that reason, I think Atlas doesn't necessarily have a first mover advantage. It could be an advantage that Chrome just winds up eating up in the end.

Marcus Johnson (07:08):

Yeah, it's a great point. I want to throw this at you. Yuri, I'll go to you first. Following onto that point of this feels like a slightly tweaked version of Chrome with a sidebar chatbot, did OpenAI launch a similar browser to Chrome out of necessity? This is one of the arguments from the piece from Mr. Wong. He thinks that OpenAI may have little choice but to undergo this commercial lurch because despite the promise of unimaginable riches from super intelligence, for now building extremely capable AI models is incredibly expensive and right now incredibly unprofitable. OpenAI reportedly losing billions of dollars in the first half of this year according to the information. He says, "To fund further AI development, OpenAI is looking to old revenue streams in Silicon Valley social media apps like its Sora products, eCommerce like its Instant Checkout, web browsers like Atlas, and personal devices." It's reportedly working with former Apple designer Jony Ive.

(08:06):

Similar to better Amazon, Google, and Apple, how they make money. Matteo Wong is saying, "Until he builds..." Mr. Altman, that is. "Until he builds that digital genie, Mr. Altman must instead look to Silicon Valley's forebears or their gadgets, apps, subscription fees, and ads to figure out how to run a profitable business. Even as Mr. Altman pitches a science fiction future, the company has changed products and business models from the recent technological past."

(08:32):

Do you expect that OpenAI to be able to break away from that down the road?

Yoram Wurmser (08:37):

I think so. I think they're looking at all types of alternative monetization pathways, including a lot of enterprise level integrations with websites just beyond Atlas. Now, there is another reason for doing Atlas and that's the data. They get tremendous first-party data from Atlas. I don't think it's just a monetization play for them, I think it's a data play very strongly. And I think their vision is to have an integrated view of the consumer, of each consumer, and then really personalize its discussions based on just the vast amount of first-party data. And they need to get that not only through ChatGPT's app but all these other surfaces you mentioned. And I think if Atlas takes off, that would be an incredible source of data for them.

Jeremy Goldman (09:29):

But to your point about the data, they have to make sure that it's a compelling enough experience for people to download it and to stick with it in order to get a meaningful amount of data. It's like a little bit of a on one hand, you don't want to do something too innovative that nobody wants to use it. On the other hand, you don't want to do something that is like, "What's the point? Why am I doing this?" To just stick it to Google? That's not a good reason.

Marcus Johnson (09:55):

My first big question for Google at the moment is around Atlas, I think that's one of the biggest things that they're thinking about at the moment. Secondly is about their ad tech business. Kendra Barnett of Adweek reminds us that back in April, the federal judge ruled that Google violated US competition laws by maintaining an illegal monopoly of two key ad tech markets and servers, Google DFP or a double click for publishers, and ad exchanges, Google AdX. Over the last two weeks, over a dozen witnesses, she writes, gave testimony to help determine how Google will be required to remedy this monopoly, the last stage of a landmark antitrust trial against the search giant. She notes a breakup would fundamentally reshape how open web ads are bought and sold, creating a more competitive landscape where Google rivals can access multi-billion dollar opportunities and Google could lose its ad tech dominance.

(10:43):

Jeremy, the main takeaway, what is your main takeaway from the remedies hearing about Google's ad tech business if you had to fill in a blank?

Jeremy Goldman (10:53):

I think the main takeaway is that... And I have to give Yuri credit here because we were actually talking about this offline, is that Google has been preparing for a future where they are less or not at all an ad tech player for a while. If you look back, if you follow their quarterly earnings, this has been just this part of their business that's been on the decline for quite a bit. And I think part of it is just the fact that it looks like a really big impressive business until you look at the overall heft and significance of everything else that Google does, and it's maybe just not worth the hassle. For a lot of other companies, they would say, "Wow, this is great." But they see the challenges and the problems with the open web and then say this is not really where we want to play and where we see the greatest margin.

Marcus Johnson (11:43):

Yeah. To your point, it's been declining every quarter for the last three years slowly but surely.

Yoram Wurmser (11:48):

And they have so many other high margin opportunities that it makes sense to shift resources from their ad tech product to things like YouTube and obviously to their AI investments which are pumping tens and tens of billions of dollars into each quarter. Yeah, I think it's not a negligible business and I think it was 7 billion this quarter. We're talking close to 30 billion for the year in terms... It's a massive business but it is shrinking each year, they're just not putting the resources into it to really build it up anymore. And I think just as Jeremy said, I think they see the writing on the wall that the open web, maybe it's not dying but it's not a high growth area right now so they're just shifting their attention elsewhere.

Jeremy Goldman (12:37):

And also as we've talked about a lot is that they've been under so much regulatory scrutiny. Going back to that point, it's if you see that you have a target at this area and you think there's a decent chance that something might happen from a regulatory standpoint that makes it no longer a part of your business, then it's a little bit harder to justify continually funding innovation within that space. It's like, "Well, we'll take the revenue rather than lose it but we also don't really see that this is the area where we should spend money." And to your point about the AI expenditures, those are big enough that you really have to find other places to not innovate just to fund the rest of that stuff.

Marcus Johnson (13:18):

Yeah. Yeah. Google network, this line item has been going down, as I said and as Jeremy noted, every quarter for the last three years. It was 15% of their business back in 2022 in the summer. It's now 10% of their business but still making billions of dollars for the company. Tripp Mickle of New York Times is saying the advertising technology which helps place ads across the web remains a small part of Google's revenue contributing, as you were saying, around $7 billion in the quarter. But the company has previously argued that it bolsters its larger search ad business. The judge is hoping Google and the DOJ can settle out of court before we get remedies from them, Judge Brinkema.

(14:00):

Okay, that's my second big question for them is about their ad tech business. My third is around their earnings this quarter. Our briefings writer, Marissa Jones, noting that Google just posted its first $100 billion quarter off the back of 16% Q3 revenue growth advertising. That portion was up 13% as its fastest growth in six quarters.

(14:24):

Yuri, how significant to you is Google's first $100 billion quarter?

Yoram Wurmser (14:30):

I think it's very significant. The number is... It's just a threshold. But I think what's more important is that they have more than doubled their revenue in five years in Q3, which is for a company of that size and of that majority is pretty darn impressive.

Marcus Johnson (14:50):

Jeremy, what does it say to you?

Jeremy Goldman (14:54):

I think about the saying the rich get rich and the poor get poorer. It's an interesting thing where we... And subscribers can see digital advertising has steadily risen and it's had a few years that have seen standout growth. And you know that digital advertising is going to grow but I think that what's been very interesting is that the larger players... We actually put out a report this past week on Triopoly earnings, Google, Meta, and Amazon. And what you really see is that there's been a lot of growth in these platforms that have essentially perfected the art of digital advertising. It becomes the safest place to park your digital ad spend. Therefore, year over year you're like, "I'm going to spend an anniversary and spend a little bit more on all these digital major ad players, and then I'm going to have that other bucket."

(15:46):

Let's say if it's a Snapchat or a Pinterest or whomever, and I'll throw a few dollars that way. But if I have to cut somewhere, it's not going to be Google. And I think that this is a very safe place and that's certainly been one of the reasons why they've been able to hit that threshold. And obviously having multiple products like Google search, like YouTube has helped them.

Yoram Wurmser (16:07):

And it's not just advertising though, which has been growing well, I think it was 13% year over year this quarter. But Cloud, Cloud is just driving a lot of this growth. And they were a distant runner up, third place before the AI era. They're growing I think it was 34% year over year this quarter. They are just killing it right now on AI services, AI storage, just cloud services in general.

Jeremy Goldman (16:40):

And again, the nice thing about having all of that high margin business is that then you put all of that into AI. And even though these are really big capital expenditures, there's only a few companies that can make these expenditures. Which then assuming that they should have spent all this money, which is a big if, there are only a few companies that are capable of doing it and then those are the ones that are going to essentially inherit the earth or the ad market afterwards.

Yoram Wurmser (17:07):

Even...

Marcus Johnson (17:07):

Please.

Yoram Wurmser (17:08):

Yeah. No, even Meta which is a massive, massive company, is getting pushback from investors because it is having a harder time funding out of cash than Google is.

Marcus Johnson (17:19):

Yeah. And we just talked about OpenAI and their move into the browser market, looking for ways... Instant Checkout as well, looking for ways to try to make money because this is very expensive business to develop good AI products. And Jeremy, to your last point, that's exactly what I've written down here was it has the money to spend on AI development, Google committing to spending over 90, 9-0, billion dollars this year on capital expenditure, up 6% on previous projections, basically AI spend. But the spending hasn't dented Google's profit gains to what you were saying, $35 billion in profit in Q3 that's up 33% from the year before. And yet to what we're saying about search as well, Google is still very much running the search world. It's search line item up 14.5%, that's its fastest quarterly growth in over three years.

(18:12):

All right, gents. That's my list. Just to recap, number one was looking at Atlas, how much of a threat is that to Google from OpenAI, the ad tech business, that trial, what's going to happen there, and then this marquee $100 billion quarter.

(18:29):

Yuri, I'll start with you. Are there any bigger questions? Would you rank these differently in terms of significance?

Yoram Wurmser (18:37):

I think those are all important questions. For me, the biggest question for Google is will Gemini as a standalone app catch up to ChatGPT and does it matter with all of Google's Gemini integrations on its other properties? I think at the last earnings call, Google said there were 650 million monthly users of the Gemini app, that's a few hundred million less than ChatGPT. But that doesn't include things like AI mode, it doesn't include integrations into other Google products. It's definitely catching up to ChatGPT and OpenAI. I'm really curious whether they can actually become the place people go to specifically for AI search and AI conversations.

Marcus Johnson (19:32):

That's a good one. Jeremy, how about for you? What does [inaudible 00:19:34] look like?

Jeremy Goldman (19:35):

I think that it's very similar to yours but to build on what we've talked about in question three and question one going back, it's how can Google and to some extent these other players like Meta and Amazon compete with private companies. If we're talking about OpenAI to a lesser degree like Perplexity and Anthropic, they're not being judged in the same way. They're not being basically let's say chastised on a quarterly basis, it's behind closed doors for the private companies. Then how does that impact their overall ability to spend from an AI standpoint? Is there going to be a quarter, it wasn't this one, but where Google has really taken to task for, yeah, you're spending a lot and you're not quite justifying it? We see why you're doing it but is really the juice worth the squeeze?

(20:29):

And again, the OpenAI is not held to that same standard. It is but we don't know what those conversations are like behind closed doors, they're obviously spending quite a lot of money. And I think that if Google is forced to maybe invest a bit less, does that wind up playing to their disadvantage or advantage in the long term? I think that'll be interesting to see how it plays out.

Marcus Johnson (20:53):

Yeah, that's a good one. Yeah, curious to see how OpenAI structure changes down the road if they're held to similar level of scrutiny as some of these public companies further into 2026 or beyond.

(21:05):

Very nice, gents. I think this is a good list with some nice additions from yourselves. Thank you so much for your time. That's where we leave the conversation, unfortunately. But thank you so much to my guests. Thank you first to Yuri.

Yoram Wurmser (21:15):

Great to be here.

Marcus Johnson (21:16):

And to Jeremy.

Jeremy Goldman (21:17):

This was cool. Thank you.

Marcus Johnson (21:19):

Yes, indeed. And thanks to everyone for listening to [inaudible 00:21:21] podcast, made possible by Nielsen. We're back on Monday, happiest of weekends.