Google has revealed its plans to expand ads within AI-powered search experiences (AI Overviews) to international markets, as part of the company's efforts to open new revenue streams amidst a noticeable slowdown in the growth of its core search advertising business.
Growth Challenges and AI Strategy
This announcement came during Alphabet's third-quarter earnings report, where the company recorded revenue of $127.6 billion, an increase of 25% year-over-year. However, search advertising revenue growth saw a continuous slowdown, recording only 12% growth in the third quarter, compared to 17% in the second quarter and 19% in the first quarter, which led to an 8% drop in the company's shares following the results.
Philipp Schindler, Google's Chief Business Officer, explained that the company has begun expanding high-quality ads within the AI mode for users globally, in addition to launching multi-turn ads in the United States.
Why This News Matters
This shift represents a strategic attempt by Google to integrate ads into the new user experience that relies on generative AI. The company's preliminary data indicates that these ad formats are yielding promising results, as click-through rates on sponsored product listings in AI mode are approaching those of organic results, and user research has shown that the ads are considered relevant and useful.
Changing User Behavior
Google CEO Sundar Pichai pointed out that search queries are seeing their fastest annual growth rate in five years, confirming that AI features have changed the way users interact with the search engine. Pichai explained that queries in AI mode are on average three times longer compared to traditional searches, with an increased reliance on multimedia including audio, images, and documents, as visual searches have exceeded 50 billion per month.
This expansion builds on the company's previous announcements last May regarding new ad formats based on the Gemini model, which include conversational discovery ads that interact with user questions and integrated sponsored recommendations within the answers generated by AI.