Google Admits AI Mode Growth Is Dragging Down Search Ad Revenue

Google search volume grew just 12% in Q3, down from 17% in Q2 and 19% in Q1, and a senior executive has confirmed on the record that the company's own AI answers are now hurting its core advertising business.

The disclosure came during parent company Alphabet's Q3 earnings call last week. Google SVP Anat Ashkenazi told investors that the strong growth in AI Mode queries — Google's conversational, chatbot-style search interface — is generating less money per query than traditional search results.

"It's worth noting that the strong growth in AI Mode queries had an impact because of the lower monetization we were seeing in AI Mode," Ashkenazi said. "To be clear, we feel very good about our trajectory here. Our ad experiments have shown promising results and we're now scaling ads within both AI Overviews and AI Mode to more users and more queries; including, as I mentioned, international markets and multiturn ads in the U.S."

AI Overviews are the AI-generated summaries that appear above traditional search results; AI Mode is the fuller conversational chat interface built on top of search.

What does this change for publishers and advertisers?

For advertisers, the immediate consequence is a thinner field of monetizable inventory. Google's stated remedy is to place more ads inside AI Overviews and AI Mode, rolling them out internationally and adding multiturn ads (ads shown across a multi-exchange conversational session) in the U.S. Early ad experiments have shown promising results, according to Ashkenazi.

For publishers, the picture is harder. As more users receive conversational answers rather than a page of links, the opportunity for Google to display query-relevant ads — the core driver of its ad business — shrinks. That pressure comes from two directions at once:

• Google's own AI Overviews and AI Mode capturing queries directly;
• Third-party chatbots such as ChatGPT and Meta's Muse pulling users away from Google search entirely.

The company's Q3 search revenue was flat, even as overall search volume rose 12%. That divergence — more queries, no more revenue — is the clearest quantitative signal yet that AI answers monetize worse than the ten blue links they replace.

A tension the CEO did not address

Google CEO Sundar Pichai struck a confident tone earlier in the call, saying that AI Mode saw strong momentum and that AI Overviews drive improved discovery and searcher engagement.

It was Ashkenazi, later in the same call, who supplied the financial counterweight. Her framing separates two things worth distinguishing: usage of Google's AI features is growing (confirmed by the company), and that growth is currently revenue-negative relative to traditional search (also confirmed). Any claim about long-term monetization recovery remains speculative, resting on ad experiments Google describes only as "promising."

The structural problem is that Google is, in effect, cannibalizing its own highest-value surface. Every query answered by a conversational AI response is a query with fewer ad slots than a standard results page. And even if Google declined to build AI answers, the broader industry shift toward chatbots — ChatGPT, Muse and others — would likely have forced its hand regardless. Defending the moat costs money; losing it costs more.

The cost side compounds the pressure. AI development expenses continue to rise at the same time search ad revenue is flattening, a ratio that currently does not add up in Google's favor.

Accuracy questions add another risk

There is also a quality dimension. A July report from The New York Times found that up to 10% of Google's AI Overviews provide incorrect information, and many others surface flawed or incorrect links. For an advertising business built on trust in results, error rates at that scale feed the rising skepticism around AI tools more broadly — and give advertisers and publishers a reason to question what they are buying into.

What to watch next

The metric to monitor in Alphabet's Q4 report is the gap between search volume growth and search revenue growth. If Google's scaled ads inside AI Overviews and AI Mode close that gap, the transition is on track; if revenue stays flat while volume climbs, the monetization deficit is structural — and the industry's shift to conversational answers will keep compressing the economics of search advertising for everyone downstream.