Google Struggling to Make AI Mode Searches Pay 19
Alphabet shares fell nearly 10% after Google disclosed that searches through its AI Mode generate less revenue than traditional search, even as overall search revenue grew 12% year over year to $63.25 billion. The Register reports: Alphabet on Wednesday reported its Q3 results, which included news that its year-over-year search query growth rate is the highest it's been in the last five years. Some of that growth comes from users adopting "AI Mode" -- Google's latest LLM-powered search system. Google's revenue from search rose 12 percent year-over-year to $63.25 billion, a little lower than the 14.5 percent growth the company reported in last year's Q3.
During Alphabet's earnings call, chief business officer Philipp Schindler said the slowdown was caused by "lower monetization we were seeing in AI Mode." That's a worry given that Google is spending enormous sums on infrastructure. $51.4 billion went out the door in Q3, around two thirds of it going towards servers and networking equipment. The rest funded datacenter builds. That spending appears to have impacted profitability, as Alphabet reported $26.17 billion net income for the quarter. Last year's Q3, during which Google revenue was $102.35 billion, produced $35 billion net income.
Schindler argued that AI search will pay off. "On AI Mode, many of these queries are upper funnel queries, allowing us to capture new, high-value commercial intent," he told investors. "In addition, the majority of AI Mode queries are incremental, creating more monetization opportunities over time." Google tried to seize one of those opportunities today, by turning on ads alongside AI Mode searches around the world, after first testing them in the US only. But for now, AI Mode searches aren't as lucrative as Google's existing search business, which brought in just under half of Alphabet's $125.8 billion quarterly revenue.
During Alphabet's earnings call, chief business officer Philipp Schindler said the slowdown was caused by "lower monetization we were seeing in AI Mode." That's a worry given that Google is spending enormous sums on infrastructure. $51.4 billion went out the door in Q3, around two thirds of it going towards servers and networking equipment. The rest funded datacenter builds. That spending appears to have impacted profitability, as Alphabet reported $26.17 billion net income for the quarter. Last year's Q3, during which Google revenue was $102.35 billion, produced $35 billion net income.
Schindler argued that AI search will pay off. "On AI Mode, many of these queries are upper funnel queries, allowing us to capture new, high-value commercial intent," he told investors. "In addition, the majority of AI Mode queries are incremental, creating more monetization opportunities over time." Google tried to seize one of those opportunities today, by turning on ads alongside AI Mode searches around the world, after first testing them in the US only. But for now, AI Mode searches aren't as lucrative as Google's existing search business, which brought in just under half of Alphabet's $125.8 billion quarterly revenue.