Google takes AI Search ads global as core ad-growth declines
What's the story
Google is expanding its AI-powered Search ads to international markets, hoping to boost revenue from its generative AI capabilities. The announcement was made during Alphabet's Q3 earnings call. Despite reporting a 25% year-on-year (YoY) increase in revenue at $127.6 billion, the company saw a decline in search advertising growth. Alphabet shares fell 8% following the results.
Revenue decline
Search revenue growth slows down
Google's search revenue grew by 12% YoY in Q3, a drop from the 17% and 19% growth rates seen in Q2 and Q1, respectively.
The slowdown has intensified pressure on Google to monetize its expanding AI capabilities effectively.
Philipp Schindler, Google's Chief Business Officer, announced during the investor call that they are now scaling high-quality ads within AI overviews globally for the first time.
Ad performance
AI ads show promising early results
Google's early results indicate that the new ad formats are performing well.
Schindler said click-through rates for sponsored product listings in AI Mode are already on par with those of organic listings.
The company also found that users find these ads relevant.
This expansion follows Google's May announcement of new Gemini-powered ad formats such as conversational discovery ads and sponsored recommendations integrated into AI-generated answers.
Query growth
AI's impact on search queries
Google CEO Sundar Pichai revealed during the earnings call that search queries grew at their fastest YoY rate in five years.
He attributed this to AI features changing user behavior, leading to longer and more complex queries.
Pichai said queries in AI Mode are three times longer on average than traditional searches.
One in five global AI Mode searches involve voice, images, or documents.
AI integration
AI agents as a new frontier for search
Pichai also highlighted the potential of AI agents as a new frontier for Search, expanding the range of tasks users can accomplish.
He said these capabilities would be integrated into Search and its Gemini app with one billion users.
"People are already using the Gemini app to do more than ask questions," Pichai added, noting complex multi-step agent queries as an example.
Ad revenue
YouTube's advertising revenue growth slows down
YouTube's advertising revenue also saw its slowest growth this year, rising by 9.2% YoY to $11.21 billion in Q3.
This is a decline from the previous quarter's 13% and Q1's 11% growth rates.
Despite these challenges, Google's total advertising revenue for the quarter grew by 10.6% to $82 billion, up from $74.2 billion in the same period last year.