Reported by The Verge AI
Google says AI is boosting searches, but that activity isn’t translating into faster growth for the business that pays for it.
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Search queries are growing at their fastest rate in five years, Google parent Alphabet said in its earnings report last week. However, Google’s 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 — clicks on ads that generate revenue for Google — slowed from 13 percent to 8 percent.
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That’s 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 fallen about 14 percent since it reported earnings last week, as investors question the costs and returns of the company’s AI ambitions.
“This is the first major disruption that Google is facing to its core business in decades.”
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’s 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 “ad experiments have shown promising results.”
It remains unclear whether that reflects a deliberate rollout of ads, as Google says, or a more fundamental problem with advertising in AI search.
“This is the first major disruption that Google is facing to its core business in decades,” Nate Elliott, an eMarketer principal analyst covering AI and advertising, tells The Verge . AI is changing how people find information — and whether they click on the ads that fund Google’s business.
What Google’s 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…