Google announced on Wednesday (October 28) the global expansion of ads integrated into AI Mode -- the conversational search mode powered by generative AI that represents the next phase of the search engine. This move is part of the company's strategy to transform its AI capabilities into a significant advertising revenue stream, even as the growth of its core search business continues to slow.
The expansion came during Alphabet's third-quarter earnings call, which reported revenue of $127.6 billion -- a 25% increase compared to the same period last year. Despite these strong numbers, Alphabet shares fell 8% after the announcement, as investors watched the consistent deceleration of Search, the business that has historically been the company's cash machine.
Google Search revenue grew just 12% in the third quarter year-over-year. This figure represents a sequence of deceleration: Q1 recorded 19% growth, Q2 reached 17%, and now Q3 marks 12%. Google Services division revenue (which includes Search) reached $96.3 billion, up 11% year-over-year, but fell short of the LSEG consensus estimate of $98.5 billion.
Philipp Schindler, Google's chief business officer, explained during the investor call: "We are now scaling high-quality ads within AI Overviews in AI Mode to more users and queries. This includes taking our monetization footprint global for the first time." The company also announced the expansion of multi-turn ads to the U.S. market, allowing ads to appear in responses to follow-up questions within the same search session.
Google detailed that queries in AI Mode are, on average, three times longer than traditional searches. According to CEO Sundar Pichai, searches grew at the highest year-over-year rate in five years, with queries increasingly longer, personalized, and multimodal. One in five AI Mode searches globally now involves voice, images, or documents. The company has also surpassed 50 billion visual searches per month.
Internal data suggests the advertising format is working. According to Google, click-through rates for sponsored product listings in AI Mode are already comparable to those of organic listings. User research indicates that consumers find the ads relevant and do not perceive them as intrusive. The company plans to expand to 10 new countries this quarter -- Australia, Canada, India, Kenya, Malaysia, New Zealand, Nigeria, Pakistan, the Philippines, and Singapore -- with plans to include Brazil, Mexico, and the United Kingdom in Q4 2026.
But the broader economic and investment context worries investors. Alphabet projected capital expenditures between $195 billion and $205 billion for the full year, meaning more than doubling infrastructure investments from the previous year. The negative free cash flow of $9.1 billion in the quarter added pressure to the balance sheet. While Google Cloud grew 103% to $30.7 billion, Search -- the primary revenue source -- needs to find new ways to grow.
The AI Mode monetization strategy reflects a fundamental shift in Google's business model. Instead of simply showing search results in a list, the company now wants to integrate commercial recommendations directly into AI-generated answers. This includes conversational discovery ads -- ad formats that respond to user questions in a natural tone -- and sponsored recommendations integrated into AI-generated answers.
For advertisers, the global expansion opens new opportunities. The multi-turn format is particularly interesting: instead of a single ad per search, advertisers can appear throughout a multi-stage conversation, increasing exposure time without necessarily increasing the number of ads per session. Google emphasizes that ads will be clearly identified as "Sponsored".
The central question is whether this new monetization model will be sufficient to offset the organic deceleration of Search. With competition from AI-based search engines (including Amazon and Microsoft's investments in the space) and the gradual migration of users to more conversational search experiences, Google needs to prove that AI Mode ads can become the next major revenue engine -- not just a complement to a slowing business.
The coming months will be decisive in determining whether Google's bet on conversational AI can sustain the financial model that has supported Alphabet for over two decades.
Sources: TechCrunch, Google Blog, Silicon Report
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