After falling 7% in the three days following Eddy Cue’s testimony, shares have rebounded, up 8% in the nine trading days since, compared to a 7% rise in the Nasdaq. The bounce is a clear sign that investor panic has eased, though questions remain.

This year’s developer conference comes as the company stands at a crossroads, one that will define the future of Search and ultimately the future of its market cap.

At the center of it all is what Google’s business model looks like in a post-blue links world. I revisited my note from last year’s I/O, and the central issue remains unchanged. Back then, the company had just started rolling out AI Overviews, which held promise by boosting Search activity that, in theory, would increase “shots on net” for blue links. Over the past year, we’ve learned AI Overviews increase Search usage, but at the same time, GPT, Grok, and Claude are pulling more usage away than Overviews are adding. The result: Search is still growing, but growth is slowing.

Looking ahead to tomorrow, the biggest question is whether Google is testing anything that delivers a simple, generative answer. Two weeks ago, they began limited testing of a feature called “AI Mode,” essentially a precursor to a world without blue links.

While I still don’t know how they thread the needle between giving consumers what they want (a simple trusted answer) and still giving investors what they want (revenue growth with continued high margins), they likely have more time than I realize to navigate the transition. I increasingly believe investors will be more patient with owning GOOG if the company gives them reason to believe it will be in a better place in 3-5 years. That could potentially involve the business model being in a much worse place over the next 1-3 years. It reminds me of 20 years ago, when shrink-wrapped, product-cycle software companies like Autodesk and Adobe were transitioning to subscription-based models. That period could be summarized by near-term business model pain for long-term gain.

Tuesday’s keynote starts at 11am ET and I expect most of the time will be focused on hero demos designed to inspire developers to build with Gemini inside Android apps. Separately, we’ll likely see some new wearable hardware that competes with Meta’s Ray-Bans. I’ll also be watching for updates on Project Astra (announced May 2024), Google’s first real step into physical AI.

In reality, none of the above will matter to Google investors. All of the attention will be on anything innovative on Search that builds confidence that they can navigate out of this generative mess.

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