Google Expands AI Search Ads Globally as Core Ad Growth Slows
Alphabet announced the global rollout of AI Mode ads during its Q3 earnings call, aiming to counteract decelerating growth in its traditional search advertising business.
Philipp Schindler, Chief Business Officer at US tech giant Alphabet (Google's parent company), announced during Wednesday's third-quarter earnings call that the company is expanding high-quality ads within its "AI Mode" to international markets for the first time. The move aims to leverage generative AI to open new revenue streams as growth in its core search advertising business continues to slow.
Alphabet reported $127.6 billion in total revenue for the third quarter, up 25% year-over-year. However, Google Search revenue grew only 12% year-over-year, down from 17% in the second quarter and 19% in the first. Following these results, Alphabet shares fell 8%. "We are now scaling high-quality ads within AI overviews in AI mode to more users and queries," Schindler said. "This includes taking our monetization footprint global for the first time. Today, we’re announcing the expansion of ads in AI mode into international markets alongside multi-turn ads and AI mode in the U.S."
Google claims early results suggest the formats are working. According to Schindler, click-through rates for sponsored product listings in AI Mode are already comparable to those for organic listings, and user research indicates people find the ads relevant. This builds on Google’s May announcement of new Gemini-powered ad formats, including conversational discovery ads and sponsored recommendations integrated into AI-generated answers.
Despite the slowdown in search ad growth, CEO Sundar Pichai noted that Search queries grew at their fastest year-over-year rate in five years, crediting AI features with changing how people use Search. Pichai stated that queries in AI Mode are three times longer on average than traditional searches, and one in five AI Mode searches globally involves voice, images, or documents. Additionally, Google Cloud revenue surged 103% to $30.7 billion, partially offsetting the softness in the advertising segment.