Google investments in artificial intelligence (AI) risk creating “even worse of a nightmare” for competitors, Microsoft CEO Satya Nadella has warned while admitting he had offered Apple nearly $23 billion ($US15 billion) per year to make Bing its default search engine.

Arguing that Google’s dominance in search had created a situation where the Internet should really be called the “Google web”, Nadella said Microsoft had spent over $150 billion ($US100 billion) over 20 years to improve its Bing search engine – but had failed to boost the number-two search platform’s market share into double digits due to Google’s domination of the search and advertising ecosystem.

Testifying during a US government hearing – in which that country’s Department of Justice is arguing that Google “illegally” pays billions to keep its search engine as the default on devices from Apple and other brands – Nadella argued that “defaults are the only thing that matter” because few users switch to alternatives.

Replacing Google as the default web search engine would be a “game-changer” for Bing, he said.

Yet Google has even secured a strong position on Windows desktops, supplanting the default Bing due to what Nadella called the openness of the Windows platform – the outcome, ironically, of the US Government successfully wrestling Microsoft to the mat in the 2001 antitrust lawsuit over its attempts to use its web browser and market dominance to monopolise the evolving Web.

Whether earned or purchased, Google’s market dominance has left rivals struggling to dent the company’s search market share, which has helped it define the Internet advertising market to the point where many advertisers were designing advertising content specifically to Google’s proprietary standards.

This had made it difficult for Microsoft to offer advertisers a platform that lets them use the same ads on Google Search and Bing – but when Microsoft tried to engage with Google to improve ad portability, Nadella said, the company had told it “to go pound sand”.

That lack of portability had left advertisers, conscious of the cost of redeveloping campaigns for Bing, favouring dominant Google and feeding what Nadella called a “vicious cycle” that is only getting more problematic over time.

Taking search engine dominance into AI

The risks of allowing Google to continue dominating the search market extend far beyond advertising revenues, however: with the rise of generative AI services rapidly positioning AI at the core of a range of business and consumer services, Nadella warned that Google was in a unique position to capitalise upon its search engine data to dominate the AI space as well.

“Despite my enthusiasm that there is a new angle with AI, I worry a lot that this vicious cycle that I’m trapped in could get even more vicious,” Nadella testified.

Microsoft has doubled down on AI this year, investing $15 billion ($US10 billion) in ChatGPT maker OpenAI and recently joining forces with Meta as it fights to seize the early mover advantage by building generative AI capabilities into Bing.

Google has been on the back foot, doubling down on development of its Bard alternative AI as part of a broader industry vision of having AI everywhere – but Nadella worries that Google’s privileged access to the world’s search data, YouTube videos, and other masses of content will provide it with an unprecedented data set on which the AI large language models (LLMs) of tomorrow will be built and trained.

Just as the billions paid by Google to Apple had heavily distorted the evolution of the search market, Nadella said, the critical importance of data to AI was likely set to drive similar deals in which Google would content owners for exclusive access to content it could use to train its AI.

Google has already been negotiating with content publishers for such access, Nadella said, alleging that many such publishers are asking Microsoft to beat Google’s offers during negotiations.

“It reminds me of what happened with distribution deals” in search, Nadella said, who referred to his desire to run Bing as a “public utility” available to all and contrasted it with Google’s buy-the-market, bully-boy tactics.

“What is publicly available today,” he said, “[may not be] publicly available tomorrow.”

Even OpenAI CEO Sam Altman has expressed reservations about the growth of AI, pushing for a licensing scheme amidst concerns that the technology can be used to influence people through targeted one-on-one “interactive disinformation”.

The Google trial is being watched closely by governments around the world – including in Australia, where the ongoing Digital Platform Services Inquiry is evaluating the market dynamics and competition impact of Google’s search dominance and similar unchecked growth by other digital giants.