[marcus_holmes]

Kodak problem. Kodak invented the digital camera but their revenue came from making photographic film. They were unable to take advantage of their invention because it would cannibalise their revenue. That didn't stop other people and the revenue died anyway.

Google's main revenue is ads based on search. LLMs are a competitor to search. Creating better LLMs will cut into search volumes.

In any large organisation this is extraordinarily difficult to manage - they have to incentivise the new tech that is actively harming the current revenues, while maintaining as much of the old revenues as possible, without creating internal conflict between these two parts of the organisation that will kill it.

Though in fairness to Google they do seem to realise this and are trying to adapt - they're letting the LLM folks mess with search. It'll be interesting to see how this goes.

[wrsh07]

This is a sensible-seeming take at first blush, but it doesn't hold up to any scrutiny (or maybe my scrutiny is faulty - you tell me!)

Sundar and many of his executives have certainly read or heard of The Innovator's Dilemma, and I expect they're all moderately paranoid that it will be their downfall.

Also, that's not it. Google has a great ai app called Gemini where they have at various points hosted the top ai image generation model (certainly for speed, and for a while for accuracy) and have innovated with features like deep research

They are monetizing their ai conversations more effectively than OpenAI could dream of via ads and chat in Google search.

They are heavily investing in compute and talent.

When they've added llm results to Google search it has _increased_ engagement and re-engagement.

What part of the competition are they blissfully ignoring?

(I have counter arguments to some of these points, but I would rather hear other people's)

[marcus_holmes]

I heard Google search volumes by humans were declining, but I can't find the reference now so may be wrong. It's definitely changing the entire SEO industry.

Are they actually implementing ads in chat yet? I haven't seen an ad in Gemini yet.

Again, the results I've seen is that LLM results in search have resulted in more zero-click searches (as a proportion of all searches), which isn't increasing engagement? But again, I may be wrong, what are you basing your assertion on?

I didn't say they were blissfully ignoring anything. I gave them credit for knowing the situation they're in and doing something about it.

The problem that I was talking about (probably badly getting my point across) is that it's internal conflict and strife that causes the pain here. One part of the company is incentivised on increasing revenue on the existing business. The other part of the company is incentivised on increasing revenue for the new business. But the new business is at the expense of the old business, so it sets up internal conflict where each part of the business tries to protect its own incentives. And Google has always been afflicted with rife internal politics.

[surajrmal]

Google search related ad revenue is still going up. Volume isn't everything. Personally, as llms have gotten better I do more and more product research on Google.

[thefounder]

Even if they include ads in Gemini the issue is that Gemini is not the best AI app. It’s maybe the 3rd or 4th. So if Google becomes the 3rd best “search/AI engine” the future is not that bright.

[surajrmal]

Search's AI mode is by far the most popular "AI app". Most of the time I don't end up using Gemini, it's because search's AI mode is good enough for my needs and I use it out of habit. I imagine a lot of other would-be Gemini users are in similar shoes.

[wrsh07]

Google doesn't care if you use Gemini or Google search. But they are so so happy if the ai results in search are "good enough" that you don't need to go use a "frontier llm"

[wrsh07]

Gemini is a brand new surface that Google has created to capture the current excitement around AI, but it's not the only surface into which they're shoving AI.^

ChatGPT's growth is incredible, but they essentially have to get all of their growth from inside codex or ChatGPT apps. Google can auto query Gemini with every search. There's an interesting piece of data which is that this tells them (on a conditioned basis^^) when is the chat result more effective than the search and vice versa?

Google can force growth of Gemini by leveraging their existing properties. This is a huge asset, and if you're wondering why Meta has artificially high usage of their LLMs it's because distribution is hard and Meta and Google have a lot of surface area to distribute on

^ no, I don't mean this as a compliment, although it does lend credence to the idea that Google is willing to update its current products with AI.

^^ ie conditional on the user's willingness to view the chat result

[thefounder]

People stop searching (aka googling). They just want to do stuff with AI and Google’s AI stuff is bad. That’s my whole point.

[gls2ro]

The thing about Innovator's Dilemma is that even if you know about it you mostly cannot escape your own company culture and norms.

If there is a "crack" there you might be able to get out of it, or it will let a disruptive idea to grow, but my way of thinking about innovator's dilemma is that is it a "culture bias": knowing about it give you some small advantage but it needs a real change to maybe have a chance to escape/act on it and the most important part is that under pressure it will quickly and imperceptible run the entire process or decision making.

[wrsh07]

Google ran a code red for a couple months iirc

But I also disagree with your reading of the innovators dilemma. You're being far too absolute

[keeda]

I agree that all of today's CEOs have learned from history and are paranoid about disruption, and I agree that Google is pivoting effectively and will even thrive in the AI era, given their technical and distribution advantages... but I think their revenues and profits and dominance will be much lower than what they are today: https://news.ycombinator.com/item?id=47957708

[wrsh07]

This take overlooks most of the work that Google has been doing in the past decade.

Have you seen their Cloud business?

Moreover, Google has continued to drive search growth since ChatGPT arrived and is executing competently. Their models are good (not great), but they have enough compute and one of the best ML-focused chips such that they aren't beholden to Nvidia (instead, they're beholden to fabs: tsmc - this is a much better dependency since Nvidia is hell bent on extracting as much value as they can from their position in the stack and it would be against the nature of tsmc to behave similarly)

Will Google's ad revenue decrease? Advertising is an incredible business because it is anti fragile.^ Even if search revenues decrease from their current highs (I would bet heavily against this), they still have YouTube with shorts and a robust display ads business that is going to improve if AI supercharges the economy (more companies - # startups founded in Jan 2026 is much higher than # founded the previous January, more products, advertising and distribution become the differentiators for these products)

If you're wondering how anthropic is going to continue to grow its base, the answer is advertising. In fact, Google is situated to fundamentally support everything that anthropic needs. Who cares if they make worse margins than anthropic? They'll benefit from the entire ride up, and they'll do the same for the next startup of that scale.

^ https://stratechery.com/2024/metas-ai-abundance/

[keeda]

Right, but my theory is that the ad business, still the biggest chunk (75%+) of their revenue, is extremely hyper-optimized for the current search journey-based UX and enjoys a monopoly + auction rigging premium (e.g. Project Bernanke) primarily through tremendous ad volume. That is, their current growth is largely based on stuffing more and more ads into commercial-intent SERPs.

However the agent-based conversational future simply does not support that level of valuable [1] ad volume, which collapses Google's carefully optimized tech+business stack.

Like I said, they will still thrive, but more because of GCP (which might see the biggest growth due to AI and the other tech + infrastructural advantages you mentioned) and the other businesses (YouTube, Waymo, etc.) However, their current cash cow is being disrupted, primarily by themselves, and I don't yet see how they can monetize agents nearly as lucratively as they've monetized search.

[1.] Sure, they could keep stuffing ads into each turn of the conversation, but 1) as I theorized in the linked post, those would be meaningless and low-value, and 2) that could just push users to competitors like ChatGPT, Anthropic or Perplexity that can offer a cleaner UX because they're starting from a clean slate and don't (yet) have the same revenue expectations to meet.

[wrsh07]

> I think their revenues and profits and dominance will be much lower than what they are today

While your linked post was explicitly about ads, this line wasn't and is just baseless

If you think that (the quoted line) you should short Google (haha you will lose all your money even if you're right, market...irrational...solvent)

Search is going to be fine. It's about half their revenue. Display is another large chunk and feels largely immune to the affects of AI, and Google is not a static entity. And their Cloud business is seeing unbelievable growth.

[keeda]

> While your linked post was explicitly about ads, this line wasn't and is just baseless

I mean, the ad business is still by far the largest chunk of their whole business, which is why I think their overall revenues, profits and dominance will decrease ¯\_(ツ)_/¯

Display is another good example of why. Like half (?) of it is YouTube, which will be fine, but the rest comes from non-first party properties, which are already seeing drastic drops in traffic. Just as with the shrinking of SERP ads, there's no way to stuff enough ads in chatbot conversations or to compensate for the display ad revenue dropping either.

I'm long Google (monopolies are usually good bets, bullish on AI + GCP, plus it is disrupting itself before others can so has good long-term prospects) but I can't see how that will compensate for its main cash cow today being cannibalized, so I fully expect future returns to be less than historic ones.

[djhn]

On TSMC: what is your reasoning or source of belief that ”extracting as much valie as they can” is against TSMC’s nature? Is there some charity charter or non-profit governance arrangement I’m not aware of? Or are you saying that geopolitics affects their pricing power?

[CuriouslyC]

Google doesn't seem to "get" agentic autonomy. Their models are trained to solve short problems really well, but they get confused over long time horizon tasks and kinda suck at tool calling to boot.

[dominotw]

> What part of the competition are they blissfully ignoring?

coding models? their own devs use claude code.

[smth-smth-ai]

> Kodak invented the digital camera but their revenue came from making photographic film. They were unable to take advantage of their invention because it would cannibalise their revenue.

a bit more nuanced take on the failure would also account for executives backgrounds at the critical period:

- in 1981 Vince Barabba — Kodak's Head of Market Intelligence — conducted an extensive internal study that explicitly concluded digital photography could replace film and that Kodak had approximately 10 years to prepare for the transition.

- Kodak's leadership in 1980–1993 saw the company through the lens of its founding identity — silver-halide chemitry, precision coating and manufacturing, and the extraordinarily high margins of the film-plus-processing business. This identity-driven decade was spent on failed diversification and defending film instead of building an electronics cost structure and a defensible high-margin position. They steered capital and attention toward businesses that fit that self-image (specialty chemicals, pharmaceuticals, hybrid film products) rather than toward digital cameras, which meant fighting Sony and Canon on low-margin electronics turf where Kodak felt no competence and feared cannibalizing film.

- It was an inside executive culture, crystallized in the 1990 choice of film-lifer Kay Whitmore over the digital-minded Phil Samper. When Chandler retired, the finalists were Whitmore and vice-chairman Phil Samper, who had a deep appreciation for digital technology. The board chose Whitmore, and was explicit about why: as the New York Times reported, Whitmore said he would keep Kodak closer to its core businesses in film and photographic chemicals. Samper resigned and went on to become president of Sun Microsystems and then CEO of Cray Research — i.e., to lead exactly the kind of digital/computing companies Kodak was avoiding becoming.

- so when Kodak did get serious to compete in digital (in 1993 board made Fisher the CEO, he came from running Motorola and held an engineering degree plus a doctorate in applied mathematics) it did so as one commodity hardware maker among many and that was too late since film began to drop as digital started to pick up, exactly as Vince Barabba predicted in 1981

[Saline9515]

LLMs still need a search API, and use it a lot.

Google is well positioned to earn from this service, especially if they can prove that their search service is superior to competitors. While they lose some of their moat, they are well positioned to dominate the market, just like they did in the consumer space.

[gmerc]

That’s not what claude code does… and that’s exactly the dilemma for Google.

[Snafuh]

Claude Code is not the majority of AI usage.

People asking any AI chat interface for ideas for their honeymoon will trigger some kind of search. SEO is still relevant and Google might still be able to sell top spots in their search so LLMs will pick it up.

[freedomben]

exactly. Claude is in a niche. It's a high-value niche right now, but a niche nonetheless. Normies don't use claude much based on the numbers I saw. Search is still highly relevant and Google seems well positioned to capitalize on it.

[dominotw]

so the argument here is that its too niche for google to care ? i dont belive that they made explicit decision to make a lame version of claude code that their own devs dont use.

[marysol5]

Yeah but LLM's don't offer you an advert.

"You tried to find a recipe for cupcakes, well all I can offer you is an advert on kitchen appliances"

[swores]

> "LLM's don't offer you an advert."

Some already do, and some of the ones that don't will in the future.

See for example https://help.openai.com/en/articles/20001047-ads-in-chatgpt

Of course that's not to say that the advertising situation will be identical to that of pre-LLM search engines, and the differences may lead to radically different economic models and user experiences. But I was just correcting your statement.

[lern_too_spel]

These people know about the innovator's dilemma. Their problem is incompetent product and people management, same as it has always been. Talk to anybody working on Gemini, and it's obvious that they're wasting a tremendous amount of effort and talent.