Google’s traditional search business remains a major source of funding for its artificial intelligence investments, even as the company’s AI Mode appears to generate less revenue per query than its classic results page. In AI Mode, Gemini answers users directly with text, leaving fewer opportunities for ads and clicks on links.
Alphabet reported third-quarter revenue of $127.577 billion, including $63.350 billion from search—almost half of the total. Search revenue grew 12% in the quarter, down from growth of 19% and 17% in the previous two quarters.
At the same time, Alphabet spent $51.355 billion on equipment and facilities over three months, exceeding the $42.290 billion generated by its operations. Advertising remains central to funding that investment: the Services division, which includes those revenues, recorded $39.157 billion in operating profit, more than three times Cloud’s.
During the earnings call, Google chief business officer Philipp Schindler acknowledged that AI Mode’s strong query growth was affecting monetization because the company was seeing lower returns from the feature. He did not specify how much less it earns or what the comparison was. The company has also argued that most AI Mode queries are incremental, meaning they are new rather than searches that would otherwise have taken place in the traditional format.
Classic search ads typically generate revenue when users click on sponsored links. AI Mode instead provides an answer directly, which can reduce the need to visit other pages. A Pew Research Center study cited in the source found that 8% of visits resulted in a click on a reference link when an AI-generated summary appeared, compared with 15% when there was no summary. Google challenged the study’s methodology.
Google is expanding advertising within AI Mode as one response. On October 28, it extended AI Mode ads to ten more countries, with the feature set to reach the United Kingdom, Brazil and Mexico in the fourth quarter. The company said internal US data showed that clicks on sponsored and organic products were already at similar levels.
CEO Sundar Pichai told analysts that Google’s priority is to create the best search experience, followed by monetization. For now, the company’s traditional search business continues to provide much of the revenue supporting its investment in AI, while AI Mode’s lower monetization presents a challenge as its use grows.
Sources: Xataka.