{"id":9944,"date":"2026-11-04T12:18:57","date_gmt":"2026-11-04T12:18:57","guid":{"rendered":"https:\/\/silvybrand.com\/?p=9944"},"modified":"2026-11-04T12:18:57","modified_gmt":"2026-11-04T12:18:57","slug":"google-search-ai-overviews-alphabet-earnings-q3","status":"publish","type":"post","link":"https:\/\/silvybrand.com\/?p=9944","title":{"rendered":"Google hasn\u2019t figured out how to make AI pay like its search engine"},"content":{"rendered":"


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Search queries are growing at their fastest rate in five years, Google parent Alphabet said in its earnings<\/a> report last week. However, Google\u2019s Search revenue growth slowed to 12 percent year over year in the third quarter, down from roughly 17 percent in the previous quarter. Meanwhile, growth in paid clicks \u2014 clicks on ads that generate revenue for Google \u2014 slowed from 13 percent to 8 percent.<\/p>\n<\/div>\n

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That\u2019s still substantial growth, but not the direction investors were hoping for from a company planning to spend about $200 billion this year on infrastructure, largely to support AI. Alphabet shares have<\/a> fallen<\/a> about 14 percent since it reported earnings last week, as investors question the costs and returns of the company\u2019s AI ambitions.<\/p>\n<\/div>\n

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\u201cThis is the first major disruption that Google is facing to its core business in decades.\u201d<\/p>\n<\/div>\n<\/div>\n

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Chief Business Officer Philipp Schindler said currency effects were the biggest driver of the revenue-growth slowdown, alongside changes in spending by advertisers in particular industries. But Google\u2019s AI makeover also contributed to the slowdown: AI Mode queries were growing strongly but monetizing at a lower rate than traditional searches, Schindler says. He added that Google feels good about its trajectory and that its \u201cad experiments have shown promising results.\u201d<\/p>\n<\/div>\n

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It remains unclear whether that reflects a deliberate rollout of ads, as Google says, or a more fundamental problem with advertising in AI search.<\/p>\n<\/div>\n

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YOY growth for search revenue vs. paid clicks in Q1-3 in 2026<\/h2>\n<\/p>\n<\/div>\n
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\u201cThis is the first major disruption that Google is facing to its core business in decades,\u201d Nate Elliott, an eMarketer principal analyst covering AI and advertising, tells The Verge<\/em>. AI is changing how people find information \u2014 and whether they click on the ads that fund Google\u2019s business.<\/p>\n<\/div>\n

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What Google\u2019s core Search business looks like increasingly depends on what you ask. In many cases, AI Overviews add generated summaries to search results; electing AI Mode turns searching into a conversation. But someone searching for Nikes can still get familiar shopping listings and text ads, says Andy Taylor, vice president of research at digital advertising agency Tinuiti. They\u2019re looking to buy shoes rather than get an AI explanation of them.<\/p>\n<\/div>\n

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Google\u2019s argument is that AI is expanding the business. Schindler says most AI Mode queries are \u201cincremental\u201d \u2014 additional questions rather than replacements for existing searches. Many are also \u201cupper-funnel,\u201d meaning people are researching potential purchases before they know what they want. The company sees those searches as opportunities to sell more ads over time.<\/p>\n<\/div>\n

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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<\/a>, saying formats developed for AI Mode could carry over, but hasn\u2019t announced when.<\/p>\n<\/div>\n

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The thing is, Google, as well as competitors like OpenAI, are still figuring out how to make ads work in AI \u2014 both delivering results for advertisers and avoiding alienating the people using their AI tools.<\/p>\n<\/div>\n

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For now, advertisers are still getting results from Google. Tinuiti\u2019s 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.<\/p>\n<\/div>\n

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\u201cIf people are clicking through less often. That is a challenge that they need to figure out.\u201d<\/p>\n<\/div>\n<\/div>\n

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\u201cWe\u2019re still seeing a good return, and we\u2019re not seeing performance take a hit,\u201d Taylor says.<\/p>\n<\/div>\n

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The catch is that advertisers can\u2019t isolate how Google\u2019s AI ads are doing. Google doesn\u2019t let them separately target that inventory or break out its performance, Taylor says. Steady overall returns could mean AI ad traffic is still too small to noticeably affect the results, or that it performs similarly to existing inventory. Taylor suspects it\u2019s mostly the former.<\/p>\n<\/div>\n

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That leaves an important question unanswered: How much will AI add to Google\u2019s advertising business, and how much could it replace? Additional queries could bring in new revenue even if each earns less than a traditional search. The risk is that AI Mode also draws people away from searches that Google monetizes more effectively. Google\u2019s claim that most AI Mode queries are additional doesn\u2019t tell us how much revenue it could lose from the searches AI Mode replaces.<\/p>\n<\/div>\n

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\u201cIf people are clicking through less often,\u201d Elliott says, \u201cthat is a challenge that they need to figure out.\u201d<\/p>\n<\/div>\n

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The promise of conversational advertising is that people share much more about their needs than they would in a few keywords. But platforms still have to identify which parts of a conversation matter and match them with the right ads.<\/p>\n<\/div>\n

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\u201cIt\u2019s not a slam dunk that it\u2019s going to turn into more effective advertising,\u201d Elliott says.<\/p>\n<\/div>\n

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An early study of ChatGPT ads suggests richer conversations don\u2019t automatically translate into more retail sales. An October working paper<\/a> 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 working paper measures retailers\u2019 sales rather than platform revenue, and its findings about ChatGPT don\u2019t establish how Google\u2019s own AI ads perform.<\/p>\n<\/div>\n

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Taylor cautions that those comparisons depend on what people are searching for. Someone searching Google for Nike shoes may already be ready to buy, while someone asking an AI tool which running shoes to choose is still researching. A higher sales return could reflect that difference in purchase intent rather than more effective ads.<\/p>\n<\/div>\n

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Google\u2019s existing business has given it room to take its time with AI ads, Taylor says. He points to its successful shift to mobile: Early phone traffic was less valuable to advertisers because shopping on a phone was cumbersome, but that changed.<\/p>\n<\/div>\n

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Elliott cautions that finding effective ad formats can take years. Search engines started with banner ads before adopting paid listings; social media went through its own experimentation. Today\u2019s formats may not be the ones that ultimately work.<\/p>\n<\/div>\n

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But Google\u2019s mounting AI spending raises the stakes. Search revenue is still growing by double digits, but the company has yet to show how well its new way of searching can pay.<\/p>\n<\/div>\n

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\u201cThey absolutely do not have it all figured out,\u201d Elliott says. \u201cNo one has it all figured out.\u201d<\/p>\n<\/div>\n

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