Google's AI features are driving more searches, but that extra activity is not producing faster revenue growth in the advertising business that funds the company, according to comments from its chief business officer. The slowdown comes as Alphabet prepares to spend about $200 billion this year on infrastructure, much of it in support of AI. Alphabet shares have dropped about 14 percent since it reported earnings last week, with investors questioning the cost and payoff of the company's AI ambitions.
Chief Business Officer Philipp Schindler attributed the weaker revenue growth primarily to currency effects and to shifts in spending by advertisers in certain industries. He also said Google's AI overhaul played a part: queries in AI Mode are growing quickly but earn less money than traditional searches. Schindler said Google is pleased with its direction and that its advertising experiments have produced promising results.
Nate Elliott, an eMarketer principal analyst who covers AI and advertising, described the situation as the first major disruption to Google's core business in decades. In his view, AI is altering how people find information and whether they click the ads that support Google. Search increasingly varies by query. AI Overviews attach generated summaries to results, and AI Mode turns searching into a conversation. Andy Taylor, vice president of research at digital advertising agency Tinuiti, said someone searching for Nikes can still see familiar shopping listings and text ads, because that person wants to buy shoes rather than read an AI explanation of them.
Google argues AI is enlarging the business. Schindler said most AI Mode queries are additional questions rather than replacements for existing searches, and that many are upper-funnel, meaning people are researching purchases before deciding what they want. Google is expanding ads in AI Overviews and AI Mode internationally and across multiple turns of US AI Mode conversations. It has also raised the possibility of ads in its standalone Gemini app, saying formats built for AI Mode could carry over, without announcing a timeline.
Google and competitors such as OpenAI are still working out how to make advertising function in AI, both for advertisers and for users who might be put off. For now, advertisers report solid results. Tinuiti's same-store advertisers raised Google paid search spending 14 percent year over year in the third quarter while holding their return-on-ad-spend targets, and Taylor said performance has not suffered. The catch, he said, is that advertisers cannot target Google's AI ad inventory separately or break out its performance, so steady overall returns may simply mean AI ad traffic remains too small to register.
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 versus $2.45. The paper measured retailers' sales rather than platform revenue, and its findings on ChatGPT do not establish how Google's own AI ads perform. Taylor cautioned that such comparisons depend on purchase intent, since a Google user searching for Nike shoes may be ready to buy while someone asking an AI tool about running shoes is still researching. Elliott said effective ad formats can take years to emerge, and that conversational advertising is not guaranteed to prove more effective.
More AI news from TechManNews.
