Perplexity Challenges Google's Search Dominance with New Features

Perplexity is ramping up competition in the artificial intelligence search market, posing a significant challenge to Alphabet Inc.‘s dominance in this area. The company’s CEO, Aravind Srinivas, announced on X that "native transactions are the best way to pursue AdWords revenue." He believes this strategy, although complex to execute efficiently, is essential for competing with Google.

What Happened: Srinivas shared news about Perplexity's new answer modes, designed to enhance their core search capabilities across various industries, including travel, shopping, places, images, videos, and job searches. Notably, in the travel sector, Perplexity has introduced native hotel booking options, developed in partnership with TripAdvisor and Selfbook.

Srinivas stressed the significance of shifting from traditional text-based answers to more structured responses, which involve elements such as images, videos, and transactional features. He stated, "Moving beyond just offering a wall of text to providing organized answers tailored for specific categories is crucial for our growth and for competing effectively against Google."

According to Srinivas, native transactions present a viable path to challenge Google's AdWords revenue claims. However, he noted that creating a seamless experience will take considerable time and effort. He criticized the way Google optimally positions itself to gain maximum credit for brand awareness generated by other platforms, such as research or social media.

This announcement comes on the heels of Alphabet’s report that its AI-led search functionalities are generating revenue comparably to traditional search results. During Alphabet's fourth-quarter earnings call for 2024, Chief Business Officer Philipp Schindler acknowledged that AI-overview results are making money “at approximately the same rate” as typical search results.

This is important, as search advertising continues to be Alphabet’s largest revenue generator, bringing in $54 billion in the fourth quarter—representing a 13% increase compared to the previous year.

Why This Matters: Alphabet is increasingly facing competition from organizations like OpenAI, Microsoft Corp., which has its AI-driven Bing, and platforms like DeepSeek and Perplexity itself.

During the same earnings call, Alphabet CEO Sundar Pichai hinted at future monetization strategies for Gemini AI, suggesting possible integrations of advertisements in the future. He noted that while the company is focused on developing subscription tiers, advertising will likely feature prominently in Gemini's monetization pathway.

Perplexity, which has backing from Amazon.com Inc. founder Jeff Bezos and Nvidia Corp., is allegedly in discussions to secure up to $1 billion in a new funding round, potentially valuing the company at $18 billion. This rapid ascent has attracted scrutiny, with media firms accusing the startup of appropriating and redistributing content without proper attribution.

Despite this, Alphabet's stock continues to lead in growth and momentum, outperforming Microsoft according to financial analyses.

Google, search, competition, AI, business