Alphabet, best known as the parent of Google, is far more than a search advertising business. Yet search remains where the company began and continues to be its core. It currently accounts for around 57% of revenue, although this share has gradually declined as other divisions expand.
Search is fundamentally driven by digital advertising spending. Within advertising, the higher the intent of a user — that is, the likelihood of converting into a sale — the higher the price an advertiser will pay to reach them. Because search queries typically signal strong intent, Google has secured a dominant share of digital advertising revenues.
When a user enters a search query, the value of the search engine lies in how effectively its algorithm matches that query to useful results. As more users join the Google platform, the company gathers more data to refine this matching process, further improving quality. From an advertiser’s perspective, the platform with the largest user base offers the best chance of connecting with potential buyers.
Search also benefits from economies of scale. The infrastructure and research costs required to build and maintain a search engine are largely fixed, meaning profitability rises as revenue grows. The cost for Google to serve 100 customers is not 100 times that of serving one. Competitors would have to replicate the same investment in infrastructure just to match Google’s platform — and even then, they would lack two decades of accumulated search data.
Considering these advantages, the release and rapid adoption of AI chatbots such as ChatGPT came as a surprise to many. These tools have managed to compete with traditional search more effectively than any previous rival as they offer a step change in user experience. Conventional searches, limited to short keyword phrases, often failed to match queries to outputs effectively. AI chatbots have improved this dramatically. Moreover, the promise of large language models (LLMs) has attracted seemingly unlimited funding, allowing new entrants to sustain significant losses for extended periods — a hurdle that stymied earlier competitors.
Alphabet, initially slow to respond, has since accelerated its efforts to defend its position. Whether through its Gemini model or AI-powered features integrated into search, the company is fighting back. Gemini’s user base has grown rapidly this year, and the recent release of its Gemini 3 model should help this sustain. Yet whether this will be enough to overcome Chat GPT’s significant headstart remains to be seen.
The key question now is how Alphabet will evolve as it moves from a near-monopoly in search to one of several providers of LLM-based AI platforms. What is sometimes understated, however, is the breadth of optionality within Alphabet’s portfolio.
Beyond search, Alphabet owns YouTube, a vast platform for both short- and long-form user-generated content. YouTube has been a major success, offering another channel through which Alphabet can sell high-value advertising. It has also benefited from the rise of short-form video through YouTube Shorts. YouTube currently contributes around 10% of Alphabet’s revenue and has grown at a compound rate of 19% over the past five years.
Outside advertising, Alphabet’s subscription products, including YouTube Premium and Google One, provide steady income while continuously feeding valuable data back into the ecosystem. This further strengthens the company’s competitive moat.
Another major growth engine is Alphabet’s cloud business. Alongside peers such as Microsoft and Amazon, Alphabet rents out computing power, storage and related services from its global network of data centres. This enables customers to convert the fixed cost of running on-premise servers into a variable cost that scales with demand. These facilities house large numbers of semiconductors (computer circuits), such as those produced by Nvidia but increasingly also Alphabet’s own semiconductors designed specifically for AI.
The cloud division also provides a natural hedge against disruption in search. As demand for AI chatbots and generative models grows, so too does demand for cloud computing power to train and operate them. This helps explain the cloud segment’s impressive 37% compound annual growth rate, and why it represents roughly 12% of group revenue.
The final element of the Alphabet story is its ‘Other Bets’ division, which represents less than 1% of revenue and remains loss-making. This segment houses Alphabet’s venture-style investments, aimed at developing future businesses. Among these, Waymo — the company’s autonomous taxi venture — stands out. Already active in several US cities, Waymo’s strong safety record and rising market share could make it a significant long-term opportunity, albeit meaningful profitability likely remains some way off.
For years, Google Search enjoyed a quasi-monopoly position. Now, ChatGPT and other LLM peers represent the most serious challenge yet, and we continue to monitor this closely. But while AI threatens one core profit pool, it simultaneously opens new avenues for growth. Alphabet’s strength lies not only in its scale and data advantage but also in the diversity of its portfolio. From Search to YouTube, Cloud and beyond, Alphabet’s multiple engines of growth provide resilience.
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