Alphabet Search revenue growth slows to 12 percent

Google's core advertising business is being reshaped by AI at a time when the company plans to spend about $200 billion this year on infrastructure, largely to support AI. The tension is that AI search features like AI Overviews and AI Mode are changing how people find information and whether they click on ads. Google argues that most AI Mode queries are incremental and upper-funnel, meaning they are additional research-oriented questions rather than replacements for existing searches, which could create new opportunities to sell ads over time.

Yet advertisers cannot isolate how Google's AI ads are performing because Google does not let them separately target that inventory or break out its performance, according to Tinuiti's Andy Taylor. Steady overall returns could mean AI ad traffic is still too small to noticeably affect results, or that it performs similarly to existing inventory; Taylor suspects it is mostly the former. An early study of ChatGPT ads 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, though Taylor cautions that such comparisons depend on differences in purchase intent rather than ad effectiveness.

Analysts note that finding effective ad formats can take years, and Google's existing business has given it room to take its time. But the company has yet to show how well its new way of searching can pay. As eMarketer principal analyst Nate Elliott put it, "They absolutely do not have it all figured out. No one has it all figured out."