Google said that the rising use of artificial intelligence chatbots, including its own AI answers, has impacted its core ad business, and could become an even bigger revenue impediment moving forward.
As part of parent company Alphabet’s Q3 earnings update last week, Google reported that search volume grew by 12% in Q3. That’s a much slower growth rate than Q2’s 17% growth or Q1’s 19% growth. The report also showed that the company’s search revenue was flat in Q3.
Google CEO Sundar Pichai initially said that the company’s evolving AI Mode search saw strong momentum and its AI overviews drive improved discovery and searcher engagement.
But later in the company’s earnings call, Google SVP Anat Ashkenazi said that while AI Mode usage is rising, the growth of these discovery options is having an impact on its ad business.
As per Ashkenazi: “It's worth noting that the strong growth in AI Mode queries had an impact because of the lower monetization we were seeing in AI Mode. To be clear, we feel very good about our trajectory here. Our ad experiments have shown promising results and we're now scaling ads within both AI Overviews and AI Mode to more users and more queries; including, as I mentioned, international markets and multiturn ads in the U.S.”
Google’s search results are declining over time. As more people use AI chatbots like ChatGPT and Meta’s Muse Google’s discovery usage could be impacted, even though the company has long held an unassailable lead in search.
As Ashkenazi said, Google is planning to resolve this by increasing ad displays in its AI products, which will help to offset some of those losses. But as more people rely on conversational answers for their queries, that shrinks the opportunity for Google to display query-relevant ads, which is the core driver of its ad business.
Essentially, Google is harming its own revenue potential by implementing AI answers. Yet, at the same time, it’s possible that the broader industry shift towards AI chatbots would have forced Google’s hand on this front either way.
It’s unclear whether Google should continue to pump out AI chatbot responses to queries, especially if that’s only going to end up costing the company more money.
It seems like a losing equation, as AI development costs rise and search ad revenue declines. This also highlights a broader mismatch around AI usage in general because the cost-to-benefit ratio may not match up.
In addition, up to 10% of Google’s AI overviews provide incorrect information, according to a report from The New York Times in July. Also,many others provide flawed or incorrect links, so it begs the question as to whether these AI responses provide real value.
This could be a key note in the rising skepticism around AI tools more broadly.
