Google Search Budgets Face First Real Scrutiny in Two Decades

Google Search ad revenue grew 12% in the third quarter — Alphabet's slowest pace this year — and executives blamed part of the slowdown on AI Mode. That figure anchors a broader shift: after two decades as the line item media buyers rarely defended, Google search now faces the scrutiny usually reserved for newer channels.

Digiday spoke with 18 media buyers in the past month. Their accounts converge on one pressure point. AI Overviews answer more queries directly on the results page. Fewer clicks reach advertisers. Fewer prime ad slots remain. Google's automated buying tools, now the default for most campaigns, bid aggressively for what is left, and Q4 seasonal advertisers push CPCs higher still.

What are buyers actually doing?

Lindsay Marty, founder of Above the Bar Marketing, described the new posture bluntly: "We're having to look much more closely at what happens after the click and whether those clicks are actually producing qualified leads and revenue."

Her clients would shift a slice of search budget into Meta and Local Services Ads if performance weakens. She quantified the slice: "The amount being questioned is generally around 10% to 20% of the Google budget when that conversation comes up."

Bryce Hamlin, vp of data intelligence at Power Digital, sees the same range from a different angle. His media mix modelling and geo-testing credit upper-funnel media with more impact and search with less. Dollars follow the models. "Google search ads are still very powerful, but in the next two-to-three years, we will see a lot of searches happen off of Google because of LLMs," Hamlin said. "We're already seeing the beginning of this trend."

He put the reallocation band at 10% to 30% of the Google search budget. Farhad Divecha, group CEO of Accuracast, said his clients question about 10% for now, but Black Friday and Cyber Monday could push that to 20% or 30% rapidly.

These are large sums. U.S. search ad spending reached $114.2 billion last year, 38.8% of total digital spend, according to the Interactive Advertising Bureau and PricewaterhouseCoopers. Agency-managed search budgets run from tens of thousands of dollars a month into the millions.

Why the math is getting harder

Branded keyword CPCs rose 5% in the third quarter, roughly in line with non-branded terms, according to Michelle Merklin, vp of search at Tinuiti. "CPCs keep rising," she said — though impressions and clicks climbed over the same period, so advertisers pay more for a larger demand pool.

Some buyers reject that trade. "It's not just traffic, but also the ROI from Google that's been squeezed in recent years, making it less attractive as a channel," Divecha said. "We definitely see advertisers looking at other options to invest budgets in, especially ChatGPT."

Accuracast's AI-led platform, Unyte.AI, already reallocates budget away from Google automatically when returns weaken, shifting spend to platforms delivering incremental conversions at better ROI. More of that money lands on Meta and TikTok, where advertisers build awareness and consideration earlier in the funnel. Tinuiti saw Facebook ad spend rise 16% among its U.S. clients in Q3. Some of that came from cutting inefficient search tactics, such as competitor-keyword "conquesting" campaigns.

Merlin's reasoning: "You have to create the demand before it can be captured." But she noted most Tinuiti advertisers sought incremental budget or reallocated from elsewhere rather than cutting search. Takeaway: search is being rebalanced, not abandoned.

Where is the money actually going?

Not necessarily off Google. Victor Batista, global search lead at Jellyfish, said clients were not reducing overall Google spend "in a targeted manner." Instead, spend shifts from keyword-based campaigns to AI-powered alternatives like AI Max and Performance Max, plus YouTube and Demand Gen. Diversification remains "generally contained within the Google ecosystem," he said.

Google, for its part, is expanding ads in AI Mode to Brazil, Mexico and the United Kingdom, while scaling existing ads in Australia, Canada, India and Kenya. A Google spokesperson said: "Every day, millions of businesses choose Search Ads to drive growth. AI Overviews create new opportunities for brands to be discovered and help shoppers make more confident decisions. As Search becomes more conversational, our AI-powered campaigns help advertisers capture these new opportunities, while keeping them firmly in control."

That statement confirms expansion. It does not address the CPC pressure or the click-through decline the buyers describe.

Meanwhile, paid and organic listings now get judged together on the results page. Mark Byrne, director of paid media at Brave Bison, said advertisers weigh where to bid and where to pull back based on combined revenue, ROAS and cost per acquisition. Valerie Dorer, head of paid search at Wpromise's counterpart Wpromote, argued the strongest strategy pairs organic AI citations with a strong paid presence. Casey Sheehan of RPA noted paid search grows more important as organic traffic comes under pressure.

Marty closed the loop: "The incremental 10% to 20% is becoming less automatic. Advertisers increasingly want Google to prove that spend is still the best use of those dollars."

Watch Q4 CPC data, Black Friday reallocation decisions, and the pace of AI Mode ad expansion as the clearest signals of whether this scrutiny becomes structural.