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I somehow doubt that all of Google’s internal decisions are as simple as “well we’re an ads company, let’s just not worry about search quality.”

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Why do you doubt this? As a company in total, I believe that all decisions are made on "will this sell more ads". At the same time, I believe that some of the ideas from the software devs are born from doing something cool. It then gets rolled into "how can we use this new thing to sell more ads"?

Because search quality drives ads.

There were search engines around but when Google came out with superior search results everyone switched and those search engines quickly vanished. There are search engines in direct competition with Google today. If Google does not provide the best service there's an extremely low switching cost. Bing, Baidu, DuckDuckGo et al would be happy to take your traffic.

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