Google’s grip on the nearly $300 billion search advertising business is loosening.
For years, the tech giant has seemed invincible in this corner of the ad market, which is the foundation of its business. Now, rivals are beginning to eat into its lead, and new offerings—fueled by the rise of artificial intelligence and social video—threaten to reshape the landscape.
TikTok, the wildly popular short-form video platform, has recently started allowing brands to target ads based on users’ search queries—a direct challenge to Google’s core business.
Perplexity, an AI search startup backed by Jeff Bezos, plans to introduce ads later this month under its AI-generated answers. Until now, it has made revenue mostly from a $20-a-month subscription offering that grants access to more-powerful AI technology.
The new initiatives add to the pressure on Google from the rise of Amazon.com, which has taken a chunk of search ad spending. Many consumers begin product searches on the e-commerce platform.
Google’s share of the U.S. search ad market is expected to drop below 50% next year for the first time in over a decade, according to the research firm eMarketer.
Amazon is expected to have 22.3% of the market this year, with 17.6% growth, compared with Google’s 50.5% share and its 7.6% growth.
“This space has been ripe for a shake-up for a long period of time,” said Brendan Alberts, head of search and commerce at the ad-buying firm Dentsu.
Google remains in an enviable position: far ahead of the pack in the search market, with plenty of resources to counter moves by its rivals. Still, advertisers are eager for more competition.
“For the first time in probably 15 years, we will have viable alternatives to Google,” said Nii Ahene, a veteran digital-advertising executive.
The generative-AI boom is transforming search products, which will increasingly serve up fully formed answers to user queries or summaries of the results. Google this past week rolled out ads in the AI-generated summaries it has begun placing at the top of search results. The ads will only show up on mobile searches in the U.S. at first, Google said.
In one example of how the new search ads might appear, Google showed a listing for a Tide pen that is available on the Albertsons website in an AI overview responding to the query, “How do I get a grass stain out of jeans?”
“We’re confident in this approach to monetizing our AI-powered experiences,” said Brendon Kraham, a Google vice president overseeing the search ads business. “We’ve been here before navigating these kinds of changes.”
Perplexity is angling for a piece of the same market. Dmitry Shevelenko, the company’s chief business officer, said a handful of “household, top-tier names” are its first advertisers. The startup will allow brands to sponsor follow-up questions that trigger a back-and-forth with the user.
In a presentation to advertisers, Perplexity said answers to the sponsored questions will be “approved ahead of time, and can be locked, giving you comfort in how your brand will be portrayed in an answer,” according to a copy viewed by The Wall Street Journal.
“What we’re opening up is the ability for a brand to spark or inspire somebody to ask a question about them,” Shevelenko said.
Some 46% of Perplexity queries in the U.S. lead to follow-up questions, according to the presentation. The company said it processed 340 million queries in September. By comparison, Google has said that it handles some two trillion searches a year. Shevelenko said Perplexity won’t ever change the search engine’s nonsponsored answers based on demands from advertisers.
Other search engines have experimented with inserting ads in AI-generated answers. Microsoft has introduced sponsored links and comparison-shopping ads in a chatbot attached to its Bing search engine.
Almost 60% of U.S. consumers used a chatbot to help research or decide on a purchase in the past 30 days, according to a survey by New Street Research. Some analysts have questioned whether ads in chatbots will be as valuable as traditional search ads, because people might be less likely to click on them.
Targeting search budgets is a logical step for TikTok. Up to now, the company has offered brands the option of displaying ads near search results, but advertisers couldn’t target their ads based on the keywords in user searches.
Advertisers remain drawn to TikTok because of the platform’s strong appeal to younger adults—interest that hasn’t diminished despite the U.S. government’s efforts to force the app to sever ties with its Chinese owner or face a potential ban. While TikTok’s U.S. ad revenue is expected to jump 38.1% this year, it only has a 3.4% share of the U.S. digital ad market, according to eMarketer.
In a pitch to advertisers viewed by the Journal, TikTok said “search behaviors have evolved” and added that the platform had global daily search volume of over three billion, with 23% of users searching for something within 30 seconds of opening the app.
Many advertisers tested TikTok’s new ad product earlier this year. Some brands were required to commit a minimum of $10,000 a month and participate for at least two months, according to ad buyers.
The digital ad firm Tinuiti said almost two dozen of its clients in such categories as consumer electronics, apparel and beauty are currently buying the new TikTok ads, and the majority are seeing positive results.
“We are seeing performance on return on ad spending that sometimes rivals what we are seeing on Google,” said Tinuiti President Jeremy Cornfeldt. The real test is what happens when more advertisers compete for keywords and ad prices go up, he said.
Some advertisers are hesitant to shift ad dollars from Google to TikTok, said Sara Young, a group account director of social activation at the digital agency Dept, partly because search volume on TikTok is still low.
The increased competition, coupled with legal pressures on Google, makes it a particularly tense time for the Alphabet-owned ad giant. This past summer, Google lost an antitrust case over its dominance in the U.S. search-engine marketplace after a federal judge said it acted illegally to maintain a monopoly in the sector. Google plans to appeal the ruling.
“Is it a vulnerable moment for Google? Absolutely,” Cornfeldt said.
Write to Suzanne Vranica at Suzanne.Vranica@wsj.com and Miles Kruppa at miles.kruppa@wsj.com
