Google is seeing more search activity as it adds AI features, but that growth has not yet translated into faster revenue gains. Alphabet reported that search queries grew at their quickest rate in five years, while Google Search revenue increased 12 percent year over year in the third quarter, down from about 17 percent in the previous quarter. Growth in paid clicks, which generate advertising revenue, fell from 13 percent to 8 percent.
Alphabet Chief Business Officer Philipp Schindler said currency movements and shifts in advertiser spending across industries were the main reasons for the slower revenue growth. He also acknowledged that queries in AI Mode were growing strongly but earning less than traditional searches. Google says its advertising tests in AI search have shown promising results and that it is expanding ads in AI Overviews and AI Mode.
The company argues that many AI Mode queries are additional searches rather than replacements for existing ones. Schindler also described them as often being earlier-stage research, which could create opportunities to show ads later in the purchase process. Google has not said when it might bring ads to its standalone Gemini app, though it has suggested that formats developed for AI Mode could be used there.
The financial results have prompted questions about whether AI search can support Google’s advertising business at the same level as conventional search. Nate Elliott, an eMarketer principal analyst covering AI and advertising, told The Verge that AI is changing how people look for information and whether they click on ads. He said the company still needs to address the possibility that users click through less often.
The effect is difficult to measure from outside Google. Andy Taylor, vice president of research at digital advertising agency Tinuiti, said advertisers cannot separately target Google’s AI ad inventory or see its performance broken out. Tinuiti’s same-store advertisers increased their Google paid-search spending 14 percent year over year in the third quarter while maintaining their return-on-ad-spend targets. Taylor said they were still seeing good returns overall, but suggested the AI ads may not yet account for enough traffic to move those results significantly.
Google’s advertising challenge is to determine whether extra AI queries bring in new revenue or divert users from searches that are easier to monetize. While conversational searches may reveal more about what users need, that information does not automatically make ads more effective, Elliott said.
An October working paper on ChatGPT ads found that US visits from those ads generated 64 percent less revenue for retailers per session than visits from Google Search ads: $0.89 compared with $2.45. The paper measured retailer sales, not the platforms’ advertising revenue, and its results do not show how Google’s own AI ads perform. Taylor also cautioned that the comparison may reflect different purchase intentions: someone searching for a specific product may be closer to buying than someone asking an AI tool for recommendations.
Google’s Search revenue is still growing by double digits, but its latest results do not yet show how effectively AI-driven searches can be monetized. The company plans to spend about $200 billion this year on infrastructure, largely to support AI, and its shares have fallen about 14 percent since its earnings report as investors weigh the costs and potential returns of those ambitions.
Sources: The Verge.