Google should be concerned about Walmart's rapid advancements in generative AI search.

• Alphabet's internet dominance is being challenged by Walmart CEO Doug McMillon, who has highlighted the retail company's generative AI search capabilities.
• This year, alongside Apple, Alphabet has been among the big tech losers in the stock market, failing to convince investors of their successful AI strategies.
• Sergey Brin, the founder of Google, has admitted to errors in the development of gen AI, but he believes that the company will eventually determine the appropriate business models. Analysts predict that online retailers will have an advantage in search within their own ecosystems.

In the future, Walmart aims to become the primary source for planning purchases for special occasions like Super Bowl parties or Valentine's Day celebrations, reducing the need to consult multiple online sources.

Walmart is highlighting its ability to use generative AI as a comprehensive solution for event planning, rather than just an online platform for purchasing individual items. During a call with analysts following its February earnings, Walmart CEO Doug McMillon discussed the company's app's AI-powered search capabilities. "The thing we're most thrilled about that's already occurred is the way search has improved, and the way generative AI helped us create a solution-oriented search experience for customers and members," McMillon stated on the earnings call. "It happened quite rapidly."

What are the potential future uses of a search engine like Google?

Since its acquisition of Jet.com, Walmart has been recognized as a major player in the retail space, with its shares currently trading at an all-time high. As a technology company, Walmart has been experimenting with generative AI search capabilities, with a low cost for failure. Sucharita Kodali, a noted Forrester vice president and principal analyst, believes that this experimentation positions Walmart as an innovator in the space, allowing them to lead rather than follow.

Though experiments can sometimes fail, such as when Google launched the Gemini gen AI into the market prematurely, Google co-founder Sergey Brin acknowledged the mistake but dismissed any concerns about the company's future.

"Brin stated that business models will likely change over time, and advertising may still be effective as AI can better tailor it. He believes that as long as significant value is being generated, they will find a way to make it work."

AI and search, shopping business model shifts

In addition to Walmart, Instacart, Amazon, and Shopify are also investing in AI-enabled search in the retail sector. Instacart's "Ask Instacart" allows customers to search based on themes like dinner or date night, while Amazon's Rufus lets people have a conversation with the platform about their needs. Shopify's "Semantic Search" helps sellers find the right items to sell potential customers, ensuring their search results are more accurate.

According to Jacob Bourne, analyst at Insider Intelligence, online retailers may adopt this practice as a standard. Bourne stated that Google is concerned about search in general, and the implication is whether it will lead to the gradual decline of Google Search.

Kodali views the threat in a less existential manner. Although the world heavily relies on Alphabet's core search business for many things, early successes in AI from retailers won't change that. "You get in the habit of using Google because you use it for everything," Kodali said. "You use it for everything else (outside of shopping), and everything else is like 90 percent of the searches you do. So, unless Amazon and Walmart are going to get into the business of the other 90 percent of the searches, it's not going to happen."

Google Cloud is investing heavily in AI tools to integrate itself into retail ecosystems, including Vertex AI Search for retail and Conversational Commerce tools. These tools allow companies to put virtual AI-powered customer service agents on their websites and apps. Companies such as Victoria's Secret, Macy's, Ikea, Lowe's, and Rainbow Shops are customers of Google Cloud AI products.

Google has over 35 billion product listings from retailers worldwide and offers AI-powered tools to help users find the perfect product. A spokesperson stated that people shop with Google more than a billion times a day, and the company is committed to enhancing shopping experiences for both customers and retailers through the use of generative AI.

Search engines need to evolve. They provide a large number of results based on a query, but users must sift through them to find the correct answer. With the increase in content production, there is now more information available than ever, not all of which is accurate or suitable. Additionally, advertising, particularly on search platforms, is a primary source of revenue for companies such as Google.

Instead of searching for products on Google and visiting retailers' websites, retailers' generative AI can provide specific answers and narrow down choices, saving time and building direct loyalty.

"Our top priority is to provide excellent customer and member experiences, and gen AI powered search enhances online shopping by making it more intuitive and convenient. With a single query for a themed party, relevant, cross-category recommendations can be generated, eliminating the need for individual searches for each item. This can save time and lead to a more positive experience."

According to Stefano Puntoni, professor of marketing at The Wharton School and co-academic director of an executive education course on generative AI and business transformation, Google may not be as concerned if retailers have a powerful generative AI engine on their platform. Puntoni believes that customers may not need to go to Google at all and can learn about what they need directly on the retailer's platform. This also gives companies the opportunity to suggest more products. Brands like L'Oreal are using AI to allow people to virtually try on makeup, which can show shoppers items they may not have been in the market for. Digital celebrities can theoretically sell products to customers through personalized AI-enabled conversations instead of a pre-programmed chatbot.

Elav Horwitz, McCann Worldgroup executive vice president and head of applied innovation, stated that generative AI search democratizes opportunities for brands and companies to create their own content. Alphabet, which owns many popular brands and valuable advertising real estate, will ensure that the results are more relevant than ever.

"Google is openly discussing the upcoming changes in the SEO and SEM model, and Horwitz predicts that we will likely see a lot of generative search or recommendations in other Google products such as Gmail, Google Drive, Google Photos, and YouTube."