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.

OpenAI starts from excellent UX and needs to prove that they can monetize all those empty pixels. They will no doubt succeed.

Google starts from horrid UX where every advertiseable pixel has been squeezed dry. Only way to go is down.