Google's Search Revenue Growth Slows as It Works Out How to Earn from AI Advertising
Search revenue growth at Google's parent Alphabet slowed to 12 percent in the third quarter, as investors weigh the cost of AI spending. The company has yet to show that ads in AI search can earn as much as traditional search.
Alphabet, the US technology group that owns the Google search engine, published its third-quarter results last week. They show a mixed picture: search queries are growing at their fastest pace in five years, but year-over-year growth in Search revenue slowed to 12 percent, from roughly 17 percent in the previous quarter. Growth in paid clicks, meaning clicks on ads that earn money for Google, fell from 13 percent to 8 percent.
This matters because the company plans to spend about $200 billion this year on infrastructure, largely to support artificial intelligence (AI). Alphabet shares have dropped about 14 percent since the report, as investors question the costs and returns of its AI ambitions.
The company's explanation
Google's Chief Business Officer Philipp Schindler said currency effects were the biggest factor in the slowdown, along with changes in spending by advertisers in certain industries. He also acknowledged that the AI shift contributed: AI Mode queries are growing strongly but earn less than traditional searches. In his words, most of these queries are incremental, meaning additional questions rather than replacements for existing searches.
Google is expanding ads in AI Overviews and AI Mode, including outside the US. It has also floated bringing ads to the Gemini app, but has not said when.
Analysts' view
Andy Taylor, vice president of research at digital advertising agency Tinuiti, says advertisers are still seeing good returns: the agency's same-store advertisers raised their Google paid search spending by 14 percent year over year in the third quarter. However, advertisers cannot separately see how AI ads perform.
Nate Elliott, a principal analyst at eMarketer, said this is the first major disruption to Google's core business in decades, and that if people click through less often, the company needs to solve that. An October working paper found that US visits from ChatGPT ads produced 64 percent less revenue for retailers per session than Google Search ads: $0.89 versus $2.45. That finding does not show how Google's own AI ads perform.
