What you need to know

• Contestability is returning to Australian search advertising markets after two long lazy decades.
• Disruption will be driven by Amazon's growing dominance, generative AI, and Gen Z's preference for social media.
• Unified search is forking into two steams – discovery and growing demand for AI powered direct answers.
• Analysts say Amazon will capture a quarter of Australian ecommerce by 2030, and garner a greater share of search ads as a result. Coles and Woolies also stand to gain from from retailer media plays.
• Microsoft has renewed vigour in search thanks to its Open AI relationship, while new AI platforms like Andisearch will likely emerge.
• The kids don't use Google for search, they prefer social – especially TikTok.
• Mid tier-sized companies will prove most resistant to shifting paid search spend from Google, while better resourced large enterprises and more agile SMB companies are better placed to move quickly.
• Start wargaming scenarios today, or risk getting run over.

Your typical CFO may not understand much about marketing but they almost all recognise the delicious predictability of search. That million dollars you drop into a spreadsheet cell for your annual budget meeting is likely the least contentious part of any review, because The Suits know it will deliver a sales outcome, within a very tight band, one way or another. Such is the beauty of algorithmic advertising.

But now, the application of generative AI to traditional search – and increasingly to social search -  along with the inevitability of Amazon’s local expansion looks like it will unpick the easiest budget choice you make each year, and challenge Google's two decades-long near hegemony.

The stakes are vast. In just the first quarter of 2023 Alphabet trousered over $US40bn in search revenues, representing the bulk of its $54bn total ad take (YouTube's $6.7bn and Google Ad Network's $7.5bn made up the balance.) Search contributes 54 per cent of the Alphabet mothership’s total revenue take. But while the headline $40bn number seems majestic, the truth is that search only grew 1.87 per cent for the quarter, compared to the last two comparable quarters when it rocketed 24.2 per cent (2022) and 30.1 per cent (2021) respectively.

The economy was certainly a big contributor to the drag but financial analysts and industry insiders understand deeper structural trends are not Google’s friends.

Advertisers have also taken note.

According to Ben Will, Manager, Group Paid Media at Virgin Australia, traditional search is at risk of disruption but he believes that for now emerging platforms are mainly playing within their own specific categories - the knock-on is that the state of search is fragmenting.

He suggested several areas where the trend in search is towards greater competition and contestability for Google. “Information research and inspirational content is challenged by generative AI and user-friendly short form content,” he told Mi3.

Meanwhile on the retailer media front he says: “Purchase intent is increasingly responded [to] by the largest ecommerce players which also take their share of ad budgets.”

Will said traditional search providers are unlikely to remain anchored to current ways of working. “Through the right integrations and adoptions, we will see traditional search evolve in an aim to bring this back into one centralised platform. This could be in the form of an enhanced knowledge graph, content integrations and direct booking features. This has already happened in the past but was always restricted by the conflict of interest with the traditional ad business.”

But a bit of competitive tension goes a long way, Will suggested. “With this core business model being at risk the transition might be accelerated. The underlying aim has always been to show the most relevant content to the users. Right now, the way this content is created is more disrupted than the way in which the content is presented.”

He said traditional search engines have always thrived by making the best of the internet easily accessible not by creating it. “Their own advancements in AI will make sure this content selection will also expand across new territories.”

Will’s observations pull together the three most important threads on search contestability.

The first is the long-term emergence in the US of a larger – and arguably better search platform – Amazon.

Next, innovation in traditional search sector with Microsoft’s integration of Open AI’s large language model into search gives advertisers reasons to take a second look at Redmond’s long unloved alternative. It also gives distribution partners like Samsung a reason to switch – it is reportedly considering Bing as the default search on its phones, although contractual obligations under its Mobile Application Distribution Agreement (MADA) agreement with Google in the US will make that hard.

And finally, demographics – in blunt terms, the kids prefer TikTok flavoured search results to traditional search, a point even Google’s own research bears out.

None of this augurs well for traditional search, and data supplied via US analyst Jack Myers, founder of Media Village, which suggests near double digit declines for US search dollars between 2019 and 2025.

Retailer media: closer to the cash register

Per Mi3’s retailer media report: According to a survey from the US peak advertiser body, the ANA, 80 per cent of US advertisers said paid search was the most important tactic offered by Retailer Media Networks (RMNs), followed by on-site advertising. According to one major advertiser interviewed for ANA’s report: “Sixty per cent of all searches today are starting on commerce sites. Traditional paid search is kind of a waste.”

Technology research firm Forrester Research has also tracked the shift. Nikhil Lai Senior Analyst, Performance Marketing told Mi-3, According to Forrester’s Q1 2023 CMO Pulse Survey, 13% of CMOs are shifting budget from another channel to fund retail media. Of that 13%, I estimate, based on anecdotal evidence, that nearly half is coming from paid search."

Furthermore, he said, "62 per cent of CMOs are funding retail media from existing trade and shopper marketing budgets, which continue to be the most used source of retail media funds."

That view tallies locally. According to Omnicom Media Group Chief Investment Officer, Kristiaan Kroon: “Retail as a category will increasingly take search budget from Google. Brands will take those dollars and put them into search on Coles or Woolworths – or Taste.com.au – because it is more specific.”

Brands will also increasingly tip them into Amazon as its tentacles spread down under. In fact, many are already doing so to the tune of tens of millions of dollar locally.

As Mi3 reported earlier this year, the ecommerce giant which generates $US38bn globally from advertising is getting more traction locally with its ads business – its ASIC filings indicate Amazon Ads revenue last year hit $100m locally.

US consumers already use Amazon as a default search platform – according to Cameron Bryant founder of Sparro, Australia’s largest search agency, Amazon’s search success reflects the sheer scale of the company’s ecommerce business in the US.

However, while its growth in Australia is unlikely to see it scale to US levels of penetration, research by investment analysis firm Morningstar suggests Amazon could control a quarter of online spending locally by the end of the decade.

In 2021 Morningstar’s director of equities Johannes Faul predicted the growth in Amazon’s ecommerce business in Australia would see it capture 25 per cent of total online retails sales in Australia by 2030.

That, by extension, creates the environment for a much larger share of local search dollars.

If it maintains the 50 per cent growth rate it achieved in 2022 Amazon is likely to get there a year early. It currently has about 5 per cent of local online retail, but such is the miracle of compound interest.

According to Merline McGregor, GM at Pattern international: “The propensity obviously is much higher to start your search journey on Amazon in the States. I think for that to happen in Australia, Amazon would need to be much bigger.”

She believes market structure here makes it unlikely that Amazon will capture US levels of market share, but even at 25 per cent, the advertising is likely to follow eyeballs at a greater rate.

One thing to watch closely is the extent to which Amazon can grow Prime in Australia. “Amazon Prime reduces the barrier to shop on Amazon. Obviously, you get additional benefits like access to the streaming service. I would say that's a value-add. But your shipping is free. And that's a massive roadblock that is being removed from Amazon.”

Amazon is also delivering a stronger outcome than other local marketplaces, according to McGregor, although she said the strength of Woolworths and Coles creates a different dynamic.

“We have teams who run search across other marketplaces. None of them have the sophistication or maturity that Amazon has got. I think the ability to drive a result from advertising can be much harder on the other marketplaces. But then when you move through Woolworths and Coles, it becomes a much more interesting play for brands when you can pay to play on those sites as well. So that becomes really interesting. That’s when retail media dollars probably get diverted away from Google.”

Super smart search dollars

Since ChatGPT burst onto the scene in early 2023, the industry has been anxiously watching if Microsoft’s relationship with OpenAI would start being reflected in search share.

In the US, there is some very preliminary evidence to suggest there’s a small early impact, but so far that’s not showing up in Australia which tends to lag even broad trends by three to six months, according to Indago Digital’s CTO Peter Dimakidis.

“After tracking the changes here for two months, we are not seeing the changes that have been identified in the US.” Dimakidis is also tracking referral traffic from ChatGPT and Google’s Bard, but as with general search numbers, nothing yet is showing up in the numbers.

And of course with its own Gen AI initiative in development Google has plenty of tools in the kit to likewise benefit from innovation in search. As marketing technology doyenne Scott Brinker noted earlier today, "Plugins for ChatGPT (OpenAI), Bing (Microsoft), and now Bard (Google) have the potential to be an incredible new channel for functional marketing. Will this be the new SEO?"

Yet, given Google’s dominance in Australian search markets – it is believed to have over 90 per cent market share, some brands have told Mi3 they are wargaming what happens if Google experiences a 5-7 per cent market share decline in search in a relatively short period – say 12-18 months.

One executive, with a $10m budget who spoke anonymously so he could comment freely, said there were real concerns over the predictability of search advertising – if Google's user numbers start tanking.

The issue is incrementality. A dollar on Google reaches over 90 per cent of the traditional search market, but what happens if that drops to 85 per cent, he asked. “The maths starts to break down,” he told Mi3, shortly after the initial burst of focus on ChatGPT in early February.

'Don't panic' (cue panic)

For now, the message to advertisers from agencies is “don’t panic.”

According to Spark Foundry’s chief digital officer Rachida Murray, it's too early to be make definitive judgements.

“At the moment, we're very much speculating. We don't have a lot of data yet around the use of Gen AI. How many people are using it, who is using it, what's the demographic breakdown there? So it is a tricky one.”

Murray believes the most likely initial change is likely to be reflected in changes in the types of search, “Between the research behaviour versus the ‘I need an answer’ behaviour.”

“I think Google will remain our first point of call for when you want to do research and you want to find nuance, you want to find options, where are the sources of information? Who am I going to trust? Gen AI, especially ChatGPT, is carving itself out a little niche. It’s about the ‘I need an answer to this.’ For instance, ‘what's the best super fund for me’, and ‘what's the best credit card?’ And that has a big impact because you can think of these questions as ‘it depends’ type questions. There are actually quite a few criteria that could be used to rank, as awards might do. What's the best credit card, what's the best home loan, what's the best superannuation based on performance, based on costs and all of those things. So there might be a single best answer.”

This is where Murray said she would expect to see the biggest impact if users shift in numbers to a more generative AI style search, saying the impact on search spend could be massive.

“A lot of these questions that you could answer as a single answer, advertisers spend a lot of money trying to outbid each other to be on top position for those.”

Sascha Bonomally, Head of Performance Media at Atomic 212, speaking in an upcoming Mi3 podcast said: “I don't think Google is seeing this as something where their revenue is going to be hit immediately. It's something that it will come later down the track. People are using the ChatGPT side of search at the moment for quite research driven searches.

“There’s a stat that 15 per cent of searches are always unique. That might be a bit dated but it goes to show you some of the queries are always different. So, it [ChatGPT] is being used for more niche things at the moment. It's being used for research: 'things to do in the city’, recipes, even reviews of products. So it's kind of top of funnel stuff at the moment. That's where it's currently at and that's not going to impact your sort of core revenue driving searches that are lead based or revenue based.”

It may be early days but companies like Atomic are already starting to consider the implications.

“It is interesting because there's going to be a question about sourcing, where that information comes from," per Bonomally. "If you're generating text that's from people's websites [and] they own that content, then you're going to have some people pushing back on it. So think about the news media bargaining code from a couple of years ago, where the news sites were claiming that Google was benefiting more from listing their websites than they were getting from having their websites listed.”

The kids are alright?

Demography may not be destiny but it can sure give you a good kick in head, especially if you fall into the trap of assuming the next generation of customers will behave exactly the same as the last.

The lesson is not lost on the current incumbent. Google’s Knowledge & Information Senior Vice Prabhakar Raghavan, last year famously acknowledged at a US trade show that the kids have already moved on from traditional search.

“In our studies, something like almost 40 per cent of young people, when they’re looking for a place for lunch, they don’t go to Google Maps or Search. They go to TikTok or Instagram.” (The data in question specifically referred to US users aged 18 to 24.)

According to Sharyn Smith, Founder and Director of Social Soup, social search reflects the kinds of experience consumers – particularly younger consumers – expect.

“They're preferring highly visual immersive content over text based, and you can pretty much get the answer to almost anything on TikTok, probably more so in a 30 second video. And they want to watch that 30 second video. They don't want to read a page of text, which is obviously what Google has built its empire on.”

As Mi3 reported earlier this year, a group of high profile media executives are looking to cash in on just this very trend by investing a new search tool called Andisearch, which is premised on this new kind of search customer preference.

But while Andisearch is likely to be just one a clutch of new gen-AI powered search services that will emerge over the next few years, social media, like ecommerce provides a more immediate challenge, with TikTok a particular standout.

TikTok is experiencing significant growth in Australia, says Smith.  “We’re seeing certainly from an influencer marketing point of view, we're seeing a lot of the budgets are moving to include TikTok. And again, that's based on people wanting to be where the engagement is.”

Given the trends in consumer behaviour, Smith has no doubt what’s coming next. “They don't do search-based advertising at the moment, but I have no doubt that's coming – contextually relevant ads around a particular search term.”

Now, with generative AI, Smith expects to see further search-style capabilities built into social media, and as a proof point she references Snap’s recently released AI tool Sage – effectively an AI buddy for users on the platform which like Bing’s updated search capability is powered by Open AI —the company behind ChatGPT.

According to Smith, “Generative AI is becoming part of the conversation in terms of social search. We’ve seen that with Snapchat. Basically, everybody got a new buddy named Sage overnight.”

That delivers a consumer-friendly AI boost to watch feels like very traditional use case.

“The app knows where you are. You could ask Sage 'what's the best restaurant that I should go and eat in tonight?' And it would look at social posting and post the results.”

In addition to its search business, Bryant’s Sparro has also been building its social capability, leaving it well placed as the market shifts.

“If you look at TikTok and Instagram and social … people want to be inspired and they want to know what's out there and how they can be inspired.”

According to Bryant, “The best way to discover – and the perfect medium, and what Gen Z has grown up on – is that visual medium of video and imagery. So obviously, that is where those channels have the benefit. “

“On TikTok you're going to watch a short clip on what restaurants to go to or where to travel, and it's that real inspirational content. People can visually see the restaurants and see the influencers, they can see content that’s already been socially proofed.”

He also notes that Google, once again, is not standing still.

“Google is making changes to have more visual search. They've introduced YouTube shorts as well. And Google has the second largest search engine in the world, too, which is YouTube.

“Obviously they still own that search market. People still go to YouTube to be inspired as well, and Google knows that. But people are shifting and searching within any app that they're spending time on – and they’re spending a lot of time on TikTok.”

Forrester's Lai is a little more cautious, saying that hew did not expect the demographic change to result in budgets shifting from search into social as he sees the two media as qualitatively different. "Search harvests demand while social generates demand. Marketers will continue to prioritize search, especially during economic downturns, given the medium’s verifiable revenue impact and high yield."

However he added, "TikTok’s and Snap’s bets on social commerce, such as TikTok’s Shop and Snap’s investments in augmented reality, are evidence that TikTok and others are looking to make their products more attractive for search advertising. Social commerce makes social platforms conducive to demand harvesting, not just demand generating."

First in line

According to Lucio Ribeiro, a marketing and innovation executive who also lecturers in AI, companies that are generating the bulk of their revenue from traditional search today are most immediately exposed to changes in the search market. “That's where the first impact is going to get hit and will be felt.”

He told Mi3, “In my view, the mid-market is not going to shift that easily. I think that to some degree, you're going to see the top tier marketers like a Commonwealth Bank, with very sophisticated digital marketers, they’re going to do it. And also [advertisers] at the bottom end, who can be very fast, and they can experiment with  $1,000 budgets.”

Ribeiro however warns that all companies need to start preparing, and that they to need to take those preparations seriously.

“You need to start building hypothesis models on what's going to be happen … because otherwise it will be too late. The moment this happens, your content is not structured, your team is not equipped.”

It can’t be left to junior staff grappling with day-to-day priorities, he says.

“The obligation is on the digital marketers, the digital transformers, the heads of digital, the heads of media, all the agencies and business sides to start building scenarios because we don't know what will happen.”

With search increasingly being in-housed by brands, that leaves both agencies and the entire marketing landscape facing a disruptive known unknown.