Kodak is famous in business schools as a case study of how NOT to respond to innovation. The printed film and camera company was once a stalwart on the stock market with a market cap reaching around $31 billion in 1997. However despite actually inventing the CCD device that led to early digital cameras, the US-based company failed to capitalize on the move away from film and print and into the digital space.
Could Google be the modern parallel of this? The company or parent company now called Alphabet of which Google is the original brand pioneered the search engine named Google, which is so synonymous with internet search, that it become the verb “Google It” is heard everywhere in context to find something out and is the go-to for many online users. But just as the Kodak company supplied the cameras, film and often processing around conventional imagery, it got displaced by a new technology that it failed to embody despite one of its engineers inventing the very technology that came to displace its entire market.
Future of Google?
Transformers at Google
Google engineers and scientists were behind the modern-day AI innovation, the Transformer which underpins the modern-day LLL (Large Language Model). Lots of jargon there, but the seminal paper “Attention is all you need” was the ignition point for the LLMs or Large Language Models that are powering the likes of ChatGPT and Bard (from Google) and a raft of new AI start-ups in what appears a Precambrian explosion of innovation around NLP or Natural Language Processing. Unless you’ve been off the internet or are a dog, you cannot have failed to see the rise of the chatbot, the ever more competent ability of services like perplexity.ai and chatGPT to answer relevant queries on just about any topic. What’s more, those tools and services can do complex tasks like answer maths and science questions and perform in a somewhat human-like way. ChatGPT 4 has a range of skills and can even outperform humans in a range of standardized tests.
The development of the Transformer model marks a significant milestone in the field of natural language processing (NLP) and machine learning. This model was introduced by researchers at Google Brain in a 2017 paper titled “Attention Is All You Need.” The Transformer model represented a departure from the then-dominant recurrent neural network (RNN) and convolutional neural network (CNN) architectures used in NLP tasks. The key innovation of the Transformer is its reliance on attention mechanisms, particularly what is known as “self-attention,” to process input data.
The introduction of the Transformer model has had a profound impact on the field of NLP. It has led to the development of various advanced models like Google’s BERT (Bidirectional Encoder Representations from Transformers), OpenAI’s GPT (Generative Pretrained Transformer) series, and others. These models have set new standards for a range of NLP tasks, including language translation, text generation, and sentiment analysis. The Transformer’s architecture has been influential not only in NLP but also in other areas of machine learning.
Google’s Reliance on Search Engine Revenue
For Google or its parent which generated roughly 60% of its income from search, it could find that its userbase declines. In Q3 2023, Google’s revenue totaled $76.7 billion, of which $44 billion (or 57.4%) was from search ads. Revenue from YouTube ads was $8 billion (10.3%), and Google Network ads registered at $7.7 billion (10%). In other words, at $59.6 billion, the total ad revenue from Google constituted 77.8% of the company’s overall revenue for the quarter. So with a business predicated on serving ads could the advertising market be going away in the face of AI-driven chat?
Moving away from Search
ChatGPT generated massive customer interest with 100M new users in just two months. For us, one thing is clear, users will rather use a chat-based interface to surface information compared with traditional search. For sure, traditional search is changing allowing information on the page to be returned without clicking through to a link, but that is not always the used. We think the world is transforming and moving away from traditional search and towards a chat-like interface.
Going back in time to pre-Google, there were a variety of internet search engines. Everything from Yahoo to Excite!, to bizarre-sounding names like DogPile. Very few of these have much currency with users these days unless in specialist markets. Google was launched in 1998 by two founders who were academics at Stanford University. But from those humble-ish beginnings, it was clear that Google provided a better way to search the world’s information. Our concern is that Google has won those early battles to become the dominant search engine and quite rightly so. But Google faces a new battle on a new battleground.
With the younger generation using chat as a way to interact with data and information, summarise facts and figures, and even do their homework, the trend is that users will want to synthesize NLP results that can help users understand the data rather than just reading from web pages. We do not see this trend going away and with the plethora of services (some are from Google like BARD) available we see this as a natural evolution of the way users want and expect to interact with information (theirs or anyone’s for that matter).
Kodak and The Digital Camera
The journey into digital imaging began in the mid-1970s when Kodak engineer Steven Sasson created the first digital camera. This prototype, developed in 1975, was a significant departure from conventional film cameras. It used a charge-coupled device (CCD) image sensor, a technology that was then primarily used in video cameras. Sasson’s camera weighed around 8 pounds and captured black-and-white images at a resolution of 0.01 megapixels. The images were stored on a cassette tape and could be displayed on a television screen. This invention laid the groundwork for the digital photography revolution, although it would be years before the technology became commercially viable and widely adopted.
The CCD technology at the heart of early digital cameras was independently invented in 1969 by Willard Boyle and George E. Smith at Bell Labs. CCDs are semiconductor devices that convert optical images into electronic signals. In the context of digital cameras, CCDs served as the electronic ‘eye,’ capturing images as arrays of pixels. Throughout the 1980s and 1990s, advancements in CCD technology, alongside improvements in image processing and storage, were critical in enhancing the quality and practicality of digital photography. Kodak developed several CCD-based camera systems during this period, primarily targeting professional photographers and industrial applications due to the high cost and complexity of the technology.
Google == Kodak?
It does feel similar. Kodask was afraid to cannibalize its revenue of print and film. We think that Google could be in a similar space but with its Google Ads, which power the revenue behind the tech giant. Kodak despite being a very innovative business that invested in a whole range of technology failed to bring those innovations to market. This is the Innovator’s Dilemma writ large.
The narrative of Eastman Kodak’s rise and fall is often cited as a quintessential example of the Innovator’s Dilemma, as described by Clayton M. Christensen in his influential book. Kodak’s journey provides a clear illustration of how successful companies can struggle to adapt to disruptive technological changes, even when they are the creators of the innovation.
Christensen argues that companies, often prioritizing current customer needs and short-term financial goals, tend to overlook or underestimate emerging technologies that do not initially meet the demands of their main markets. This oversight leads to a failure to adapt to market shifts, ultimately resulting in their decline. Christensen’s 1997 book and work have become a foundational text for understanding the dynamics of business innovation, corporate adaptation, and strategic management in the face of technological change.
Sadly now, much of the interest in Kodak as a company doesn’t come from mainstream film any longer as its market has been disrupted. Aside from hipsters using film cameras is there a film market? Certainly, not mainstream anyhow.
Google’s Technology Portfolio
Google or its parent company has a vast array of technologies that it works on. Everything from Life extension to Quantum Computing. Obviously whilst Google’s revenue ( bread and butter ) comes from search, it has realized that diversification is key. But some of that diversification is centered around the Google ecosystem – for example, its phones are a gateway to Google services including search.
What does a world look like without a Google search? We should start thinking that way, because just as Google displaced the incumbent technology of its time, Google is now at risk of being that incumbent which gets replaced by one of the start-ups that are busy commercializing their LLM or AI products.
We think the role of search is in decline and Alphabet/Google will need to find alternative revenue sources that do not rely on users clicking sponsored links or ads. Google will need to find a way to generate income that doesn’t involve clicking paid-for links. But can it?
Will Google Innovate or Die?
The time is right for a new model that underpins the internet. Ads are so 90’s and we think the users have had enough. Those that can, will avoid adverts, whether that is on streaming services such as Netflix, Disney+, or the wider web. Could the future be a paid-for subscription service to an “AI” that does what Google search does? We are not saying that Google will go away. It has its Bard service. But it will need to cannibalize itself and its revenue to deliver another way that users can consume information, content, and data. Will Google learn the lessons of past companies like Kodak or will it stick to its cash cash of Online Ads?