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Google goes all-in on AI

It's starting to look as if the AI bubble won't just burst, it could explode.

For the first time since it became a listed company, Google/Alphabet has spent more than it earned, producing a negative cashflow thanks to massive investments in AI technology.

The numbers are mind-boggling.

Although it earned $39 billion during the last quarter, Alphabet actually spent $45 billion on building AI infrastructure -- that's almost half a billion dollars a day.

How on earth does Google plan to recover this massive investment?

Obviously Google's AI back end is becoming highly integrated into almost all the products and services it offers.

If you use Google search you'll have noticed that most queries now result in an AI-generated summary, right at the top of the page.

If you upload videos to YouTube you'll find that the system is constantly inviting you to use AI to create thumbnails, give you video ideas and even create entirely AI "shorts".

In fact, I don't know if there is a single element of Alphabet's array of services that hasn't been "infested" with AI in some way or another.

However, herein lies the problem...

The company is clearly trying to create a dependency, a reliance on AI. It wants us to see AI as a part of everything we do and therefore a necessity in our lives.

Whether we're a school-kid researching our homework, an engineer looking for some technical insight, a researcher seeking to get a meta-analysis of several hundred studies or just a housewife wanting a quick recipe for cake she can serve to her guests at tomorrow's morning tea -- Alphabet wants you to use AI.

So how does this make any financial sense?

Surely, if AI is so expensive to build and run, giving it away as part of every service you offer, to such an extent that you're now bleeding red ink, is a plan destined for financial disaster?

Ah, no. The thing is that these AI services are only free... for now.

As I suggested in a previous column, when a dealer wants to get you addicted to a street-drug they'll often give you the first one or two deals for free. However, as soon as you *need*, rather than just "want", your fix; well then they start charging.

Alphabet is busy hooking us on AI right now and in some cases, offering huge inducements. Take the YouTube creator for instance...

Creating a good thumbnail that makes your video really stand out is essential for getting views (and therefore $$) on the platform. There are (or at least there *were*) some people who made their living simply by designing thumbnails for YouTube creators. This is because a "professional" looking thumbnail is more likely to catch someone's attention and that attention turns into money in the bank.

Now however, YouTube's pages are littered with what look like very professionally designed and crafted thumbnails with display-type graphics, bold wording and often fascinatingly real action scenes that just invite you to find out more.

And they're all done for free by YouTube's AI thumbnail generator.

As a viewer of content on YouTube this is a disaster to me. Now everything is so "samey" that I can no longer tell if a video is entirely AI generated or simply using an AI thumbnail by simply looking at my feed page or search results. This has been exacerbated by the fact that YouTube now no longer even displays the likes/dislikes ratio so you can't tell if a video is worth watching until after you click on it.

If you're a lousy thumbnail artist (like me), you just have to put up with the fact that people are going to look at my amateurish thumbnails and move on to something that looks a little more polished and professional. So imagine what happens when YouTube starts charging for the use of this AI feature...

Those who pay will likely get more views than those who don't and thus there will be a steady stream of people who'll pay whatever YouTube is asking, just to keep up their visual ranking in the feed and search results.

Likewise, once people have forgotten how to actually do their own research and instead rely on Google's AI summaries, the company could easily add just a small subscription fee -- perhaps offering you a "premium" Google Account that would keep all the AI features in GMail, search, YouTube etc -- while the poor people got nothing.

Right now Alphabet is spending 50 cents per week for every man, woman and child on the planet, building and running its AI back-end. Now imagine that the richest 20 percent of the world's population was paying $5 a month for a "premium" Google Account. That's an income of over FIVE TIMES the amount that they're currently paying to build and run the system.

There's your profit.

However, what if people aren't prepared to pay?

What if people get AI-overload and digital overload? What if they decide that the world is a much nicer place with bar-phones, clocks with hands, cars with carburetors, mail in an envelope and movies on a disk?

Nah... not going to happen is it?

However, I still wonder if Google and the other AI players haven't massively overestimated the market for the AI services they're building. If they have then we'll see a massive crash that will be perhaps one of the worst in modern history. If not, then Alphabet will truly rule the world.

Funny but I don't look forward to either outcome.

Carpe Diem folks!

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