Google Launches Global Expansion of AI-Driven Search Ads Amidst Slowing Core Ad Growth
Google is set to introduce advertisements in its AI-enhanced Search services across global markets, hoping that generative AI will create new pathways for revenue even as its core search ad growth faces a slowdown.
This announcement was made during Alphabet’s earnings call for the third quarter on Wednesday, where the company reported a revenue of $127.6 billion, marking a 25% increase from the previous year. Despite this, the growth rate for Search advertising has continued to decline, leading to an 8% drop in Alphabet’s stock price following the news.
In the third quarter, revenue from Google Search rose by 12% year over year, a decrease from the 17% increase observed in the second quarter and 19% in the first quarter. This decline adds pressure on Google to leverage its expanding AI capabilities to generate significant advertising revenues.
Philipp Schindler, Google’s chief business officer, stated during the investor call, “We are now scaling high-quality ads within AI overviews in AI mode to more users and queries.” He announced the global expansion of ads in AI mode, which includes multi-turn ads and a rollout in the U.S.
Initial results indicate that these new ad formats are effective. Schindler noted that the click-through rates for sponsored product listings in AI Mode are already on par with those for organic results. User feedback also suggests that these ads are perceived as relevant.
This initiative builds on Google’s prior announcement in May regarding new ad formats powered by Gemini, which include conversational discovery ads responding to user inquiries and sponsored suggestions integrated within AI-generated content.
Alphabet’s CEO, Sundar Pichai, mentioned that Search queries have experienced their highest growth rates in five years, although he did not reveal the specific figures. He attributed this increase to AI features that have transformed user interaction with Search, allowing for longer and more complex queries.
Pichai stated that queries made in AI Mode are, on average, three times longer than traditional searches. Additionally, one in five global searches in this mode utilize voice, images, or documents. Google has also exceeded 50 billion visual searches each month.
“Search is delivering the advantages of AI to more individuals than any other product worldwide,” Pichai told investors. “Users are engaging with our AI features more, conducting searches in innovative ways. Their queries are longer, more personalized, and multimodal.”
Alphabet’s Google Services division, including Search, reported $96.3 billion in revenue, which is an 11% increase year over year. Google Cloud’s revenue soared by 103%, reaching $30.7 billion.
These results follow an eventful quarter for Google, highlighted by the launch of Gemini 4 Argon, an increase in the Gemini app user base to 1 billion monthly users, and the introduction of the Pixel 11 series.
