Google's AI boom isn't making money like search

Search queries surge but revenue slows

Google parent Alphabet reported search queries growing at their fastest rate in five years.Yet Search revenue growth slowed to 12 percent year over year in Q3, down from roughly 17 percent in the previous quarter.

Paid clicks decline sharply

Growth in paid clicks, which generate revenue for Google, slowed from 13 percent to 8 percent year over year.

Google spending 200 billion on AI

Alphabet is planning to spend about 200 billion dollars this year on infrastructure, largely to support AI. The slowdown in revenue growth has raised questions about whether that investment will pay off.

AI queries monetize at lower rates

Chief Business Officer Philipp Schindler said AI Mode queries were growing strongly but monetizing at a lower rate than traditional searches. He attributed the slowdown partly to currency effects and advertiser spending changes.

“This is the first major disruption that Google is facing to its core business in decades.”

First major disruption in decades

Nate Elliott, eMarketer principal analyst covering AI and advertising, told The Verge that AI is changing how people find information and whether they click on ads that fund Google's business.

Different searches, different ads

AI Overviews add generated summaries to search results, while AI Mode turns searching into conversation. Someone searching for Nikes still gets shopping listings and text ads, says Andy Taylor, vice president of research at Tinuiti.

Google's incremental search argument

Schindler says most AI Mode queries are incremental, meaning additional questions rather than replacements for existing searches. Many are upper-funnel research before people know what they want to buy.

Expanding ads across AI products

Google is currently expanding ads in AI Overviews and AI Mode, including internationally and across multiple turns of US AI Mode conversations. It has also floated bringing ads to its standalone Gemini app.

Advertisers still seeing good returns

Tinuiti's same-store advertisers increased their Google paid search spending 14 percent year over year in Q3 while maintaining their return-on-ad-spend targets. But they cannot isolate how AI ads are performing separately.

“We're still seeing a good return, and we're not seeing performance take a hit.”

ChatGPT ads earn less per session

An October working paper found that US visits from ChatGPT ads generated 64 percent less revenue for retailers per session than visits from Google Search ads: 0.89 dollars versus 2.45 dollars.

Purchase intent complicates comparison

Andy Taylor cautions that comparisons depend on what people are searching for.Someone buying Nike shoes on Google may be ready to buy, while someone asking an AI which running shoes to choose is still researching.

Finding effective formats takes years

Elliott cautions that finding effective ad formats can take years.Search engines started with banner ads before adopting paid listings, and social media went through its own experimentation.

“They absolutely do not have it all figured out. No one has it all figured out.”