*

Google's AI investment aims to counter competition,

maintain

search dominance

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Analysts predict Google's search market share may drop

below 50%

in five years

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Google One subscription service grows with AI-enhanced

offerings

By Kenrick Cai, Jeffrey Dastin, Greg Bensinger

MOUNTAIN VIEW, California, May 20 (Reuters) - Alphabet's

Google kicked off its annual developer conference on

Tuesday with a flurry of announcements showcasing its huge

investment in artificial intelligence, while seeking to fend off

concerns over the future of its business.

The I/O conference in Mountain View, California, has adopted

a tone of increased urgency since the rise of generative AI

posed a fresh threat to Google's longtime stronghold of

organizing and retrieving information on the internet.

In recent months, Google has become more aggressive in

asserting it has caught up to competitors after appearing

flat-footed upon the release of Microsoft ( MSFT )-backed

OpenAI's ChatGPT.

Top executives including CEO Sundar Pichai have often cited the

pole position of its Gemini class of AI models on public

leaderboards, ahead of top models from competitors including

OpenAI and Meta.

Pichai said at the conference: "Over and over, we've been

able to deliver the best models at the most effective price

point."

The Gemini app now has more than 400 million monthly active

users, Pichai said.

The Alphabet chief also announced other advancements

showcasing AI, including an update to the company's Google Meet

video conferencing software that would translate meetings

between English and Spanish in real time.

And Pichai showcased Google Beam, hardware that makes video

chats feel like they are taking place in person, in partnership

with HP and based on Google's Project Starline.

At the same time, with consumer use of AI chatbots maturing,

investors will be tracking the degree to which Google is

aggressive in disrupting its search advertising business line,

which accounted for the majority of the company's $350 billion

in 2024 revenue.

Earlier this month, Alphabet stock lost $150 billion in market

value in one day after an Apple ( AAPL ) executive testified

during one of Google's antitrust cases that AI offerings had

caused a decline in searches on Apple's ( AAPL ) Safari Web browser for

the first time.

In turn, some analysts reassessed how to measure Google's

dominant search market share, which has for years hovered around

90% by traditional metrics.

A Bernstein analyst note this month placed the figure at 65%

to 70% when accounting for usage of AI chatbots. Wells Fargo

analysts estimated that Google's market share could fall to less

than 50% in five years.

The analysts cited a behavioral shift drawing consumers

toward AI chatbots where they once used traditional search

engines.

Google's market position could be further rocked by the

outcome of legal challenges, in particular a pair of antitrust

cases brought by the Justice Department, which is seeking the

forced sale of parts of the tech giant including its Chrome

browser.

Investment in AI accounts for most of Alphabet's $75 billion in

forecasted capital expenditures this year, a dramatic uptick

from the $52.5 billion in 2024 spending that the company

reported. In April, Pichai reiterated those spending plans

despite market uncertainty around tariffs.

Google has injected more AI into its core search engine over the

past two years, primarily through AI Overviews, generative AI

summaries that are increasingly appearing atop the traditional

hyperlinks to relevant webpages, and AI Mode, an experimental

version that leverages AI more intensively to answer complex

queries.

Tuesday's announcements will likely include further updates

to search as well as Google's effort to deliver a "universal AI

agent."

At last year's conference, the company teased Project Astra,

a prototype tool that can talk to users about anything captured

on their smartphone camera in real time.

The company began experimenting with inserting ads into AI

Overviews last May, though it has avoided any radical changes

that would rock the boat.

Meanwhile, Google is expanding other revenue streams to monetize

AI. Last week, the company told Reuters its Google One consumer

subscription service had crossed 150 million subscribers helped

by "millions" of customers who signed up for a $19.99 per month

plan with access to AI capabilities unavailable for most free

users.