Google’s AI overhaul of search hits snags as ad revenue growth cools

Google is rolling out ads powered by its AI technology to markets around the world, in an attempt to boost ad revenue despite a slowdown in its core search advertising business. This expansion was disclosed during Alphabet's third-quarter earnings call, following the company's announcement of $127.6 billion in revenue, a 25% increase year-over-year.

However, growth in Search advertising has slowed, causing Alphabet shares to drop 8% after the results were released. Search advertising revenue grew 12% year-over-year in the third quarter, down from 17% in the second quarter and 19% in the first quarter. To address the challenge, Google is scaling high-quality ads within AI overviews and making them available to more users and queries.

Chief Business Officer Philipp Schindler revealed that these new formats have already achieved click-through rates comparable to organic listings. Additionally, user research indicates that people find the ads relevant. Google's use of AI features has led to longer and more complex queries, with AI Mode queries being three times longer on average than traditional searches and one in five AI Mode searches globally involving voice, images, or documents.

Google has also surpassed 50 billion visual searches per month. CEO Sundar Pichai credited AI features with changing how people use Search, noting that their queries are becoming longer, more personalized, and multimodal. Google Services, which includes Search, generated $96.3 billion in revenue, a 11% increase year-over-year. Meanwhile, Google Cloud revenue surged 103% to $30.7 billion.

These results come after a busy quarter for Google, including the launch of Gemini 4 Argon, the growth of the Gemini app to one billion monthly users, and the release of the Pixel 11 lineup.