Google says AI Mode is holding back growth in its search ad business

Google says AI Mode’s rapid growth helped slow revenue growth in its search business. People are asking more questions, but the conversational search service still has what chief business officer Philipp Schindler called “lower monetization.”

Speaking on Alphabet’s October 28 earnings call, Schindler was explaining why Search’s revenue growth slowed from the previous quarter. He did not put a dollar figure on AI Mode’s effect.

Search revenue still rose. Google’s Search and other business brought in $63.35 billion in the third quarter, up 12% from a year earlier, according to Alphabet’s earnings release.

Schindler identified currency movements as the biggest reason growth slowed from the previous quarter. He also pointed to changes in retail, media and entertainment advertising. AI Mode was one factor in that wider picture.

People are asking Google more questions

In his prepared remarks, CEO Sundar Pichai said Google’s year-over-year search query growth rate reached its highest level in five years. He credited AI investments with increasing usage, including searches with commercial intent.

AI Mode questions also tend to be longer. Pichai said they average three times the length of traditional searches. One in five AI Mode queries worldwide uses voice, images or documents, giving people more ways to explain what they need.

Those figures describe search activity. They don’t show how much revenue AI Mode earns, or how often its users buy something after clicking an ad.

Google is still working out how to sell ads against those searches

Schindler said most AI Mode queries are additional searches. Many come from people still exploring their options, which Google sees as an opportunity to reach potential customers earlier.

The company is expanding ads across AI Mode and AI Overviews as it works to turn that activity into revenue. It reported promising ad experiments, without giving a separate revenue total for AI Mode.

Pichai said Google aims to get the user experience right before concentrating on monetization. If you advertise on Google, that leaves two separate things to watch: how many people use AI Mode, and how successfully Google turns those searches into ad opportunities.

Source: Alphabet earnings call, Alphabet earnings release, Google