Alphabet revealed in its latest earnings report that Google search revenue growth slowed to 12 percent year over year in the third quarter, dropping from roughly 17 percent in the previous quarter. According to The Verge, this deceleration accompanies the company's heavy spending on AI infrastructure and highlights ongoing struggles to monetize AI queries at the same rate as traditional search results.
Key takeaways
- Alphabet shares dropped about 14 percent following the recent earnings report.
- Growth in paid clicks decelerated from 13 percent to 8 percent year over year.
- Chief Business Officer Philipp Schindler pointed to currency effects and advertiser spending shifts as factors in the slowdown.
- Advertisers currently cannot isolate or separately target inventory coming from AI ad placements.
Why is Google search revenue growth slowing down?
Philipp Schindler noted that while AI Mode queries are expanding strongly, they monetize at a lower rate than standard searches. This marks the first major disruption to Google's core business in decades, as noted by eMarketer principal analyst Nate Elliott to The Verge. Search queries are scaling at their fastest rate in five years, yet the transition to conversational interfaces changes how users interact with ads.
Andy Taylor of Tinuiti explains that standard searches for products like shoes still trigger familiar shopping listings because shoppers are ready to buy. In contrast, AI tools often answer broad research questions before a user decides on a specific purchase. Alphabet argues that most AI Mode queries are incremental additions rather than replacements for old search habits.
How alphabet earnings reflect the cost of ai infrastructure
Alphabet plans to spend roughly $200 billion this year on infrastructure to support AI operations. Investors are questioning whether these high expenses will yield proportional returns, especially given that conversational advertising remains unproven at scale. An October working paper cited by The Verge showed that visits from ChatGPT ads generated significantly less retail revenue per session than traditional Google Search ads.
Taylor points out that Google managed the difficult shift to mobile traffic in past years. However, finding profitable ad formats for AI environments could take years of experimentation. Advertisers maintain steady overall returns on traditional search campaigns, but the performance of newer AI inventory remains difficult to measure accurately.
What it means for advertisers
Retailers and brands are still getting reliable performance from standard campaigns, but the integration of ads into AI Overviews and AI Mode introduces new uncertainties. Google is currently expanding ad placements internationally and across multiple turns of conversational searches. Executives believe these upper-funnel queries will eventually drive more sales over time, but platforms must still learn how to match rich conversational data with effective commercial results without alienating users.
Frequently asked questions
Google's search revenue growth slowed to 12 percent year over year in the third quarter, down from roughly 17 percent in the previous quarter.
Alphabet plans to spend about $200 billion this year on infrastructure, largely to support its AI initiatives.
Alphabet shares have fallen about 14 percent since the earnings report as investors question the costs and returns associated with the company's AI ambitions.
Chief Business Officer Philipp Schindler stated that AI Mode queries were growing strongly but monetizing at a lower rate than traditional searches, while also noting that most queries are incremental.
Growth in paid clicks slowed from 13 percent in the previous quarter to 8 percent year over year in the third quarter.
Based on reporting by The Verge. Read the original article
