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Advertising will always be our biggest revenue driver: Alphabet's Eric Schmidt

Eric Schmidt, Alphabet Inc. Chairman
Patrick T. Fallon | Bloomberg | Getty Images
Eric Schmidt, Alphabet Inc. Chairman

Advertising will always be the biggest revenue driver for Alphabet despite projects ranging from driverless cars to artificial intelligence, Eric Schmidt, the executive chairman of Google's parent company, said on Tuesday.

Revenues from advertising rose 16 percent year-on-year in the first three months of 2016 to $18 billion and make up a vast majority of Alphabet's overall revenues.

But the company has faced stiff competition from the likes of Facebook with its big push in video. And it has also been looking to diversify the company into new areas such as driverless cars and even virtual reality.

Nonetheless, the majority of revenue from Alphabet is likely to still be generated from advertising in the future.

"It's always been advertising and I suspect it will always be advertising because advertising is such a large part of the global phenomenon, because our advertising is more accurate ... our tools will get better and better at getting the right ads to you in the right place," Schmidt said during a fireside chat at Start-up Fest in Amsterdam, hosted by CNBC.

"We're obviously going to have growth in these other areas. The advertising space is so large, our advertising ... is so good at delivering the right ads."

A big part of this will be Google's focus on artificial intelligence (AI) in understanding user behavior as well as preferences.

The U.S. technology giant recently released a toolkit for developers to integrate AI into their software that understands written English. AI is difficult to develop but Google's aim with releasing the tools will help it stoke the ecosystem.

"Part of our job is to seed markets with new ideas and the quickest way to do that is to build software ... where you literally freely license it," Schmidt said.

"We believe that not only will we be using (the AI toolkit), but all our competitors will and all the start-ups, and on balance that's a win because we win when the whole ecosystem gets larger."

Technology companies are having to re-evaluate business models in the face of a changing environment. Amazon has constantly said that its cloud business will overtake retail, while Apple is looking at ways to get further revenues from its software and services.