More searches,

fewer ad dollars

Alphabet reported its third-quarter results on 28 October. Revenue from Google Search & other rose 12 percent to 63.4 billion dollars, and the company says the number of searches is growing faster than at any time in five years. Even so, the stock fell between 11 and 13 percent during the following trading day.

Why did the stock fall?

Search revenue came in below what analysts had expected, while Google is spending enormous sums on AI infrastructure. According to Ars Technica, Chief Business Officer Philipp Schindler said that a search in AI Mode currently generates less ad revenue than a regular search.

Fewer ads are shown in AI Mode, and they are priced lower. The number of searches and ad revenue are therefore growing at different speeds.

Our take

Google has a strong incentive to get more and better paid ads into AI answers. We therefore expect more ad formats in AI Mode and AI Overviews, and more automation such as AI Max and Performance Max. For advertisers, that means three things:

• Search is still growing.Google is the biggest source of customers ready to buy, and the third-quarter figures confirm it.

• New placements can offer cheap visibility now.Lower prices in AI answers leave room to test AI Max and ads in AI answers in a controlled way, with clear measurement.

• Follow the search terms.The more Google automates, the more important it is to see which searches the money is actually spent on.