Google's search ad growth slowed to 12%, and its own chief business officer blamed AI Mode

Google's search advertising revenue grew 12% year over year in its third quarter, down from 17% in Q2 and 19% in Q1, and for the first time the company's own chief business officer tied part of that deceleration directly to AI Mode's ad economics.

On the October 28 earnings call, Philipp Schindler told a J.P. Morgan analyst that strong query growth in AI Mode was diluting search revenue growth because AI Mode "monetizes lower" than the rest of Search. He did not say lower than what, exactly, and Google has not published a monetization rate for AI Mode or a side-by-side comparison with traditional search ads. Alphabet's Search & Other revenue came in at $63.35 billion for the quarter, according to Search Engine Journal's reporting on the call, which is essentially flat against Q2's $63.27 billion even though the year-over-year comparison still shows growth, because last year's quarter was weaker.

Schindler named two other factors alongside AI Mode's weaker monetization: currency movements, and a tougher year-over-year comparison because search growth accelerated through the back half of 2025. CFO Anat Ashkenazi added that retail advertisers in Asia-Pacific were hit by the EU ending its de minimis exemption for low-value imports, and that media and entertainment spending normalized after a strong Q2 that included the World Cup. Ashkenazi also warned of a larger currency headwind in Q4, concentrated in Search and YouTube ads.

What changed

This is the first time Google has put a number on the trend and named AI Mode as a contributing cause, rather than treating the shift to AI-generated search results as a monetization non-event. Two straight quarters of deceleration, from 19% to 17% to 12%, is a pattern a public company can't wave off as one bad quarter. Alphabet shares fell roughly 8% after the report, per TechCrunch, and Schindler used the same call to announce that ads in AI Mode are now live in ten additional markets, with follow-on question ads launching in the US and no opt-out for eligible campaigns.

Google's own evidence that AI Mode ads work is limited to click-through rate. Shashi Thakur said sponsored and organic product listings in AI Mode are getting "already similar" click-through rates, based on internal US data from August 20 to September 3. CEO Sundar Pichai separately said search query growth is the fastest in five years, with AI Mode queries running three times longer than a typical search and one in five AI Mode searches now involving voice, images, or documents.

"Google currently combines AI Mode performance with standard campaign and search terms reporting," advertisers can't isolate what AI Mode traffic is actually costing them or converting at, according to Search Engine Journal's analysis of the call.

Click-through rate parity says nothing about conversion rate, cost per acquisition, or lead quality, and Google isn't breaking those numbers out by surface. That gap matters more now that Schindler has confirmed AI Mode pulls down blended monetization: it means a channel Google is actively expanding is, by its own account, currently worth less per interaction, and advertisers have no official way to measure how much less inside their own account reporting.

Who it affects

Any software company running Google Search ads is exposed here, directly or not. Schindler's framing implies Google has an incentive to recover the lost monetization somewhere else in the account, and some performance marketers are already saying that's visible in their numbers. Marketer Max Anderson, writing about the same earnings report, argued that Google sustains overall revenue by charging more for lower-quality traffic, pointing to broader default keyword matching and auction pricing, plus a policy that lets campaigns spend up to twice their stated daily budget in a single day. Daniel Koss compared the pattern to traditional media raising prices as demand softens.

Neither claim comes with a controlled dataset, and Google has not confirmed a deliberate CPC increase tied to AI Mode. But the incentive structure Schindler described on the call, a growing, lower-monetizing surface sitting next to a maturing, higher-monetizing one, is exactly the condition under which a platform raises prices elsewhere to hold revenue flat. SaaS marketers who treat Search as a stable, forecastable line item should treat that assumption as weaker than it was two quarters ago.

What a software marketer should do differently

• Pull your own blended CPC and conversion rate trend line for the past two quarters before you trust Google's account-level summaries, since AI Mode traffic isn't broken out separately in standard reporting.
• Don't treat AI Mode's "comparable click-through rate" claim as a conversion or lead-quality claim. Google itself hasn't published either.
• Re-check daily budget caps and keyword match settings this quarter. If Google is backfilling revenue through auction dynamics, campaigns on broad match with loose budget caps are the ones most likely to absorb it.
• Watch the next earnings call. Schindler's framing, that lower AI Mode monetization is a drag Google expects to close "over time," makes this a recurring line item worth tracking quarter to quarter, not a one-off disclosure.