← Behind the Numbers: an EMARKETER Podcast
Behind the Numbers: an EMARKETER Podcast
Behind the Numbers: Google’s Plans After the DeepSeek Announcement and How Much GenAI Chatbots Can Erode Its Search Dominance in 2025
00:25:54
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- [00:00]
Marcus
This episode is made possible by Zeta Global. Do you know what it takes to transform marketing into a data driven profit center? Are you able to align the C suite around your AI vision and strategy? Zeta Global has a playbook to help you get started. Download Driving Growth in the AI era today. Link in the show notes. It's free. Hey gang. It's Tuesday, February 18th. Jeremy, Evelyn and listeners. Something. I hope you had a good long weekend. Is what I was going to say. President's Weekend, right? Did anyone know? Comments?
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Evelyn
All right, so what?
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Marcus
So I hope you had a good long weekend. I thought you.
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Jeremy
Oh, we did. Thank you. How was yours?
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Marcus
Absolutely no mom is over, so. People listening. I hope you had a great one. Not these two. This is an Emarks video podcast called behind the Numbers made possible by Zeta Global. I'm Marcus and today we'll be discussing Google with the two folks who refused to talk to me. So we'll see how this episode goes. One of them is called Jeremy Goldman and he is our senior Director of briefings living in New York. Hello, Jeremy.
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Jeremy
I will always talk to you whether you like it or not. Hey, Marcus.
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Marcus
Hello. And also senior Analyst covering distributing and media based in Virginia. It's Evelyn Mitchell.
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Evelyn
Wolf. Howdy, everyone. Try and stop me from talking about Google.
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Marcus
I know. Okay, today's fact. This is rough. The US has lost at least three nuclear bombs that have never been found.
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Evelyn
What?
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Marcus
That's right.
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Evelyn
How do you lose a nuclear bomb?
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Marcus
Yeah, exactly. Exactly.
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Jeremy
But I feel better about not knowing where my keys are right now, so that's not so bad.
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Marcus
2022 BBC article by Zaria Gorvette so three of them. The center for Arms Control and Normal Proliferation notes. The first one, BB, it's a B47 bomber. Dropped an 8,000 pound nuclear bomb into the waters of Tybee island in Georgia after colliding with an F86 fighter jet. So there's that one that was in. I think it was it. 58, 59, Philippine Sea, 1965, a bomber, plane, pilot and B43 thermonuclear bomb slipped off the side of a carrier boat, never to be seen again. And 1968, the Thurle Air Base in Greenland. There's a cabin fire forced the crew to eject, leaving the plane to crash with its nuclear payload on board.
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Evelyn
Okay, so they. They know where they lost them, they just can't find them. Not that. They just like out of track.
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Jeremy
I like that you're putting like a positive spin on it.
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Evelyn
Well, I just. No, I'm Just trying to get.
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Marcus
They put it like, where's that new cape on?
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Evelyn
That's what I thought. And I'm reeling myself.
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Marcus
Where you put it. I don't know.
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Evelyn
I don't know.
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Jeremy
We know what part of the planet it's on, so we feel a little.
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Marcus
Better, however, because that is frightfully terrifying and negative. Also, this is a new fact of the day for you. According to research by scientists at Northampton University, which is the town next to where I grew up, cows have best friends.
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Evelyn
Oh, I love that. I love cows. I love friendship.
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Marcus
And we're back. And they get. They get stressed when separated.
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Evelyn
That's precious.
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Jeremy
Are you milking this fact for all it's worth?
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Marcus
Yes. And on that note, today's real topic, Google. All right, we're talking Google today, so let's do it. Let's start by talking about how they wrapped up the end of the year. Q4 looks pretty good. And Q4 revenue, this is ad revenue. 2024 was almost identical revenue growth, that is to 2023 at close to 11%. So 11% ad revenue growth in Q4 of last year. 2023, I should say, and Q4 of 2024. But the real story for me at least was when you zoom out, 2024 growth was nearly double 2023. So what that is telling you is that Q1, 2 and 3 were really good. Q4 growth was similar to last to the year before that. But Q1, 2 and 3 is where Google really made some significant gains. We're playing slice of pie to start the episode off. So, Evelyn, do you want to go first? Could you create a pie chart for us as to the reasons 3 maximum why Google, in your opinion, was able to double full year ad revenue growth from 2023 to 2024.
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Evelyn
This one, this is kind of like asking who deserves credit for a class project where one student did the bulk of the work, then another one had a key idea that really animated the project, but they had less time to work on it. And then the third student actively held the other two back. In this situation, Google Search would be the workhorse. YouTube would be the idea guy, and Network would be the slacker. Network's underperformance is no mistake on Google's part. It's a very strategic choice. It's lower margin than search and YouTube, which are owned and operated by Google. Network attracts outsized regulatory scrutiny for the amount of ad revenues that it contributes in Q3. 2023, YouTube contributed more ad revenues than Network for the first time. And Network has continued to shrink while YouTube has grown. And then over the course of 2024, network accounted for 11.5% of ad revenues. But since it logged negative growth every single quarter, I'm going to say it gets no pie.
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Marcus
It's been negative for. Since the middle of 2022 every single quarter and now fell. It was negative 3% for the full year. 2024. It was negative 4 and a half the year before that. So it did get better, but it's still in the red in terms of growth.
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Evelyn
It is. It's a strategic play on Google's part to sort of kind of remove its. Its dependence on that segment. But as the cash cow that has held its own against rising competition from a variety of angles, I'll give search 75% of the credit for. For Google's ad revenue growth. That's roughly the same as its share of 2024 ad revenues. And then YouTube, which drove the most growth, but only accounted for 13.7% of ad revenues. I'll say YouTube gets 25% of the pie.
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Marcus
Okay, Jeremy, what would your pie chart.
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Jeremy
Look like for advertising only? Right.
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Marcus
Yep.
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Jeremy
Yes. Yeah, that's what I thought. So, yeah, it is really difficult. But I would actually kind of say that now I don't know if I can really bring network to zero for the simple reason that network isn't zero. It's just. It's not growing.
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Evelyn
Right.
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Marcus
And it's still $30 million.
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Jeremy
Right, exactly. It's amazing when we think about, like this thing that is in decline for a major company and then think about how many companies we cover that are very relevant, that network alone is bigger than. Right. I mean, that would be a pretty substantial list. I still have to say. And I think that probably then for that reason, I. I would give it something like 15. I think that I would actually.
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Evelyn
So you would give it more contribution for the growth than it contributed to ad revenues.
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Jeremy
I think that as it shrunk. As it shrunk simply because it's. And I know that. I'm not saying this might not be as cogent of an argument, but I think that from a strategic standpoint, Network is obviously on the decline. However, it could simply. It could be declining by a far greater rate than it is right now. So I'm not necessarily giving it credit for growing, because I can't. Because it's not. But at the same time, I think it's worth noting that, you know, again, that is a sizable portion of the overall revenues. I think that again, if we're talking about YouTube purely from how much it grew year over year. It was 14% up year over year. It's a small percentage of the overall for Google, but at the same time, in terms of the overall cachet and in terms of the acquisition of a key coveted demographic and creating really amazing patterns of viewership, particularly with Gen Alpha, you know, and other people who are going to be with Google for a long time, I think that YouTube is kind of batting above its average in some ways. So that would be some of my rationale for giving YouTube a bigger portion of, of the pie. You know, possibly 25, let's say the network's 15 and, and then probably the rest, the remainder, the 50, you know, to the core search business.
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Marcus
Yeah, yeah. YouTube's performance, you would have thought that its share of the PI in terms of the money it's making would have. I mean, it's been growing so fast going back to 2020, 31% and 44% the year after that. Then it drops, it goes down to 1, but it goes 8 and 15. But Google advertising itself has been growing at a similar clip. And so the share over that time from before the pandemic to now, the share that YouTube makes up of the ad piece is, has gone from 11 to 14%. It's not grown as much as I would have expected. However, the growth and the consumer side of things that all the metrics are just doing fantastically well. One of them, YouTube now accounting for 25% of all time spent streaming video on a TV according to Nielsen's gauge. Netflix is at 20% for context. So 25 for YouTube, 20 for Netflix. Put another way, 11% of people's TV time cable streaming, all of it is spent watching YouTube. And Evelyn, you said there's a bit of a Milestone announced by YouTube as it pertains to TV versus mobile.
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Evelyn
Yes. Yeah. Neil Mohan just announced that TV now is the primary device from which YouTube watchers watch YouTube. We had our marketers forecast, had that YouTube eclipsing mobile back in 2023. So, you know, we've seen this coming. Really. It's nice to have it confirmed by, by YouTube. But YouTube is definitely a big player in the TV space and it has. That's part of why I didn't find YouTube's performance surprising. It has a lot going for it. It is a darling of consumers and YouTube is working really hard to capitalize on those consumer viewership trends.
- [10:58]
Marcus
Q4 revenue for YouTube cracked the 10 billion mark for the first time, which is pretty impressive. Let's talk about The Cloud piece of this because Cloud is kind of a bellwether for how people see Google's AI business investments going. Cloud revenue growth disappointed but Cloud's Google's. Cloud's operating income was more than double year over year. Over 2 billion in Q4. Evelyn, what do you make of how Cloud's doing and what that says about Google's AI investment?
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Evelyn
It's a really tangled knot to try and unpick here. I think Google has put a lot of effort into incorporating AI into I mean to bring it back to advertising, into all of its ads products and into consumer facing products. And that is a really, I think it's harder to, to look at as a bellwether for how AI is performing for Google because it, you know, there isn't necessarily a line item on the earnings report that says this is how much AI contributed to our ad revenues. But I think Cloud is doing pretty well all things considered. I think this disappointment was unfortunate considering just the timing of everything going on with Deepseek and questions around the closed model strategy Google has employed. So I suspect that's part of the market's reaction around Cloud's disappointment. But as far as actual performance, I think it's respectable.
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Marcus
Yeah, that's such an interesting question now or discussion which is around Jeremy, how Deepseek may have kind of reset how we view AI progress. And Jennifer Elias was noting that Google plans to invest 75 billion in capital expenditures in 2025 as it continues to expand on its AI strategy. A month ago that would have been viewed by investors as a good thing. But it feels like Deep seats kind of recap calibrated the market somewhat. When shareholders read this now they might instead be thinking do we need to spend that much? Nvidia stock price is still down 20% since Deep Seek showed the world that you might actually maybe you don't need that much computing power to build advanced AI models. On the other hand, Dan Gallagher of the Wall Street Journal was noting analysts were widely expecting Google to boost its capex plans with the company being actually a bit late to the expensive AI party. What do you make of how investors folks are going to look at these big tech giants paying for AI data centers, paying billions and billions of dollars in light of this R1 model from Deep Seq saying oh look, we spent $6 million and achieved similar results?
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Jeremy
Well a few things there. One thing is Microsoft said that for their fiscal they were going to be investing around that same amount as Google. Okay. So like we can't put this out of Context, Right. Meta said that they're going to put in a little bit less than that, but you know, quite a significant amount. And some of these announcements happen. Deep Seek broke through. People might have overreacted to Deep Seek. Not saying they definitely did, but it's just like one of those things where, you know, some information comes out, it may or may not be 100% accurate and everybody freaks out and starts doing what somebody else did. You know, it's worth noting that SoftBank, which is not necessarily trying to throw, you know, bad money after good or whatever the phrase is, I'm awful at, you know, turn of a phrase, decided to throw in a few more billion doll dollars into OpenAI. And this was actually after Deep Seek. So I think that the jury is still out on what's the best way to, you know, make it big with respect to AI. But I think the key thing is, is obviously you have to pay for these investments no matter what they are, if they're big investments or if they're small. And you have to find different ways to monetize these investments. You know, Google's clearly trying to do this both on the cloud front, both on the consumer facing front from a recommendation standpoint, which they've done forever, you know, with YouTube and optimization. You know, they've invested in faster ad creation tools to get people to create ads at a faster clip and make that whole entire experience more seamless. So I think ultimately the key thing is are they investing a lot? Yes. Are they finding enough ways to justify these investments? You know, that's something that they're clear, clearly very much focused on.
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Marcus
And that's how folks might start to look at this. Nico Grant of the New York Times was saying Google would spend, as we mentioned, $75 billion in CapEx in 2025. That's up for context from 52 billion last year or the year before that. So it's a difference of over $20 billion that he notes could have otherwise added to the company's profits. And so I think there is now going to be a bit more scrutiny. Even if it wasn't 6 million that they used to develop DeepSeek, their R1 model, even if it was 15 times that, you're still looking at 100 million. Even if you times that by 10, whatever it is, it's still a lot, lot less evident to what you were saying. Going with more of an open source model in terms of, I mean, lots of stories coming out about there's this model, that model is ChatGPT. There's R1, there's anthropic has Claude, et cetera, et cetera. However, it doesn't seem to have knocked Google off the search perch, if you will.
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Evelyn
Oh, they still search perch, that's great.
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Marcus
You're welcome. That's why they pay me the medium dollars. EVELYN and so lots of headlines about how, you know, Google might be affected, how people are going to be looking for things online differently. And there's a Capgemini survey I saw 6 in 10 people have replaced traditional search engines with Gen AI tools. Now Google has a Gen AI tool. But I'm wondering everything we talked about last year, but now we're into a brand new year. How much do you think other gen AI chatbots, chatgpt folks like that are going to be able to chip away Google's search dominance this year?
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Evelyn
Yeah, I think it's important to caveat before I launch into I have a bunch of data to bring to bear on this. But before I get to that, I think it's important to caveat that the survey found, the Capgemini survey found that nearly 6 and 10 have replaced traditional search engines with genai tools as their go to product. Their go to for product and service recommendations. So there's a specific use case that that applies to. I recently put out a data drop on the state of Genai search going in 2025 because there is so much buzz about genai platforms and Google's vulnerability. And there's survey data that suggests a critical mass of consumers has decided to defect from Google and yet it doesn't really show in a lot of different places. Google's search ad revenues are healthy. We just discussed that. They grew 13.2% year over year in 2024 compared to 7.7% in 2023. So that's positive momentum. Google traffic volume still dwarfs that of its Genai first competitors. Similar web data from December shows Google saw 31.8 times more web visits than ChatGPT, which was the next biggest Genai search destination. I mean Google remains the single most critical source of search referral traffic for publishers. Data from Bright Edge shows that despite. Did I take your data, Jeremy?
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Jeremy
You did. It's a video podcast. People saw me react. Oh well, it's live podcasting.
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Marcus
Throw in.
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Evelyn
Well, I mean there's, there's so much data about this right now, which is I there, you know, I put together the, the piece I did at the start of the year. The data from Bright Edge shows that despite eye popping increases in referral traffic from ChatGPT and Claude and perplexity. I mean, those growth rates are from such a small base compared to Google that Google's share of referral traffic remained pretty much unscathed at 92.44% in November 2024. So Google is still a giant in this space. All that said, Genai chatbots will chip away at Google search dominance in 2025. Obviously, Google is no longer the only game in town. Obviously consumers find the experience appealing, at least for certain use cases. I think advertisers should by no means ignore what's going on with Genai search. I just think if we're framing it around, like framing the conversation around what it means for Google and Google's prospects in the search space. Google has this huge, huge advantage over anyone in the Genai search space and that's its ubiquity. Searching anywhere besides Google for any reason takes more time and effort for users right now. And Google also is actively fortifying its positioning against those competitors by adding AI overviews. And this year it also plans to incorporate a Gemini powered chatbot into the search results interface. Kind of like where it has news and images at the tab at the top. So it's not going down without a fight. Honestly, I think that Google's biggest weakness is antitrust enforcement. As we all know, Jeremy and I were, I believe on an episode together.
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Jeremy
Yeah, Evelyn, I was actually going to bring up and you know, Marcus, you might recall, but we were talking about this and it's interesting how there are a lot of people who talk about, you know, what's going to happen from an antitrust perspective. What is interesting here is that Google seems to be innovating in part as a response to the market, despite the fact that it has such a major market share. So Google's kind of acting, not quite afraid but aware of the fact that they could lose this immense lead and maybe they could lose it quickly if they don't keep on innovating.
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Marcus
So is Google going to be able to be both things to all people? So for now, I speak to someone about this today, trying to get a sense of the consumer behavior angle of this. And I was saying to them like, okay, when, when they both use Google and ChatGPT and I was like, when will you use each or even. And they were saying, well, ChatGPT is for like heavier research ideas. Google is for direct answers. And as you mentioned, they're trying to bring add a Gemini chatbot to Google. Do you think that Google can change that perception of them just being go to them Quickly because even for shopping now, that's Amazon. People go there. So do you think Google can be the ideas generator, the research place, the direct answers people altogether?
- [22:24]
Evelyn
I think it can. I think especially if it's is if it can maintain its position as like the gateway to the Internet where it's like a homepage for. I wish I don't have the percentage on, on hand. I don't know if anyone has the percentage of like homepages that Google represents in terms of a data point. Data point.
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Marcus
I believe that 90% of searches according to similar web.
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Evelyn
Yeah. Oh yeah. In terms of search volume.
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Marcus
Really high page.
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Evelyn
Yeah, gosh, yeah, like, because I mean they are just so Google is everywhere and if it maintains that like first touch advantage and it can also sort of show consumers that all of those different kinds of search experiences are at their fingertips with Google, I think it can absolutely maintain its advantage. It does need to improve. I, I think I notice my own search habits a lot more than I would have if I didn't have this job. And so I pay attention to where I choose to search depending on what I'm looking for. And if I have a question that I know will trigger an AI overview most of the time I'll still go to Perplexity because I like that layout better. It tends to find things and source them more easily for me to fact check everything. So I still, I use Perplexity. I have it open on my browser pretty much all the time for work. I never use it in my personal life and all of that. I mean it speaks to a very complex consumer search behavior future. Hopefully we can get some data on that in the next year or two as consumer behavior starts to kind of normalize around all of this embarrassment of choice here.
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Jeremy
That's the. By the way, I think that's the. You hit the nail on the head is that there's so much consumer choice right now and also it's going to keep evolving because each one of these tools, you know, by the time our next episode, when you inevitably ask Evelyn and I to come back to discuss Google, you know, you, you will see that their feature set will have changed, you know, and everybody and all the chief competitors will have changed as well. And you know, who knows, maybe even they'll open up one of those deals, let's say between Google and Apple in terms of the de facto, you know, search engine that's used on iOS devices. Like if that becomes in play and OpenAI starts to tackle a space like that, then maybe Google's ubiquity gets chipped away at bit by bit.
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Marcus
Yeah, that's a great point. Yeah. Just a question. I was thinking to myself, like, how does OpenAI. How do they fit into people's daily lives? And how people are going to see them as a tool to help them out with those different tasks? All right, folks, that's where we have to leave the conversation, unfortunately, for today. Thank you so much to my guests for hanging out with me today. Thank you. First to Evelyn.
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Evelyn
Thank you, Marcus. This was super fun.
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Marcus
Yes, indeed. Thank you. Please stop trying to be too shocked. Thank you so much to Jeremy.
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Jeremy
This was so great. And next time, I will bring the data before Evelyn convention.
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Evelyn
Yeah, next time you'll start with Jeremy.
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Marcus
And then I'll keep things fair. Thanks to the whole ASG crew, Victoria, John Larson, Danny Stewart, who runs the team, and Sophie, who does our social media. Thanks to everyone for listening to behind the Numbers in my IT video podcast, made possible by Zeta Global. Tune tomorrow to hang out with Sarah Lebo and the retail gang as they discuss how Lego became the world's largest toy maker.