It would suck for Google to make $20B from AI Chat instead of making $160B in Search, it wouldn't suck for Microsoft to make $20B from AI Chat instead $2B in Search.

If the AI assistants live to the promise, Google is screwed even if they make the best and most popular one.

I think the Innovator's Dilemma is an inexorable part of a large middle management bureaucracy. The management and product orgs look to isolate themselves from risky bottom-up innovation because they want to avoid things that risk the brand / aren't on message. Similarly, the lower rungs are focusing on demonstrable "impact" and there's no rewards for experiments that fail which means any "risks" taken are all safe hedges that are in-line with incremental bets that can't disrupt the status quo. Therefore the only "innovation" at large companies is that which is allow-listed is that by the top of the management chain.

That being said, it's still too early to tell here. Microsoft is releasing "something". Whether it's any good or whether Google will respond too late is too hard to tell. AFAIK, there's published research that shows that Google's LLM is actually significantly better than ChatGPT, so is it going to take them all that long to productize it ("long" in terms of having a significant impact on market share)?