Actually I believe Google is the one caught between a rock and a hard place here because their stock will reprice once the market realizes how much their position has weakened re: search ads.

They commanded an absurd premium on ads by virtue of being monopolistic leaders of search. They don't have a better product anymore, only a scale/distribution advantage.

They could afford to wait, but... profits.

Also, they have to start experimenting now to get the formula right for AI ads.

The idea that users will switch because a platform has ads has never played out in the past. The average user just doesn’t care.

100%. This is the only part that I find surprising/confusing. Surely whoever blinks first incurs a massive reputational hit with the public (who don't think about this deeply enough to see that it was always inevitable), so why do that if you don't have to?

Perhaps the bright side from Google's POV is that it means that they can be the first to start wooing advertisers to their platform. First-mover advantage there might outweigh reputational damage with the public, especially if OpenAI follows suit with ads in 6 months.