Alphabet closed the September quarter with its ad engine still growing, but the results put a spotlight on the gap between AI-driven search usage and the revenue it currently generates. Consolidated revenue rose 25% year on year to $127.6 billion, while Google Services revenue — the segment that includes Search, YouTube, advertising and subscriptions — climbed 11% to $96.3 billion.
Search and other advertising revenue rose 12% to $63.3 billion. YouTube advertising grew 9% to $11.2 billion, and Google Network advertising inched up 1% to $7.5 billion. Together, Alphabet’s three principal advertising categories brought in roughly $82 billion.
AI search is creating more demand than ad yield
Alphabet CEO Sundar Pichai said Google Search queries are growing at their fastest year-on-year pace in five years, with AI-powered experiences pushing users toward longer, more complex queries. AI Mode questions are on average three times longer than conventional searches, and roughly one in every five AI Mode searches worldwide uses voice, images or documents.
Most AI Mode queries are incremental, Google says, adding new search activity and earlier touchpoints in product discovery. But that extra usage has not converted into ad revenue at the same rate as classic Search. Google cited AI Mode’s lower monetisation as one factor in the moderation of Search advertising growth.
Google is expanding advertising in AI Mode across international markets, extending ads in AI Overviews and AI Mode to more users and queries, and has introduced multiturn advertising experiences in the US. India was not identified among the markets named in the international expansion.
Where growth came from
Retail was the largest contributor to Search advertising growth, followed by financial services, according to Philipp Schindler, Google’s Chief Business Officer. Foreign-exchange movements were the biggest drag on the quarter-over-quarter slowdown, while media and entertainment spending normalised after a strong World Cup-boosted Q2.
YouTube’s 9% growth was led by brand advertising, with living-room viewing now contributing more than one-third of YouTube’s total ad revenue. Google Network remained the weakest of the three segments at 1% growth.
Gemini is doing more of the ad work
Google is weaving Gemini more deeply into ad systems to improve relevance, predict clicks and conversions, and personalise delivery. New AI-powered product listing ads lifted user satisfaction by 19% and cut dissatisfaction by more than half. In Discover, personalisation improvements delivered 18% incremental advertiser value and an 8% improvement in user sentiment.
AI Max and Performance Max campaigns now lean on Gemini to generate creative at scale — more than 1.5 billion campaign assets in Q3, over seven times the year-ago figure. Google also rolled out generative creative tools in AI Max and a new A/B testing system for Search campaign budgets and ROI targets.
What marketers should watch
- AI Mode is an early discovery surface now, but it monetises below traditional Search — plan it as a test budget, not a direct swap.
- Retail and financial services led Search growth; Q4 faces tougher currency and year-ago comparisons.
- AI Max and Performance Max are scaling creative generation quickly, with Gemini producing the assets.
CFO Anat Ashkenazi cautioned that Search advertising could face additional pressure in Q4 from currency movements and tough comparisons with the strong second half of 2025. For marketers, the takeaway is a transition, not a slowdown: Alphabet’s AI search is generating more activity, while the advertising model that monetises it is still catching up.
Source: MediaNews4U
