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| Google’s corporate logo on a wal |
Google has been pouring money into artificial intelligence (AI) across its products. In late 2024 and early 2025, Alphabet (Google’s parent company) reported strong earnings driven by this AI push. But most of Google’s money still comes from selling ads on its services, especially Search and YouTube. As Google rolls out new AI tools and features, analysts are asking: Could these changes help or hurt ad revenue? This report looks at Google’s recent ad-sales numbers, its AI strategy (like Gemini and AI features in Search and Workspace), and what experts say about the risks and rewards. We’ll also compare Google’s moves to rivals such as OpenAI, Microsoft, and Amazon.
Ad Revenue Trends and Recent Performance
Google’s advertising business is huge. In fact, ads bring in about three-quarters of Alphabet’s total revenue. In the fourth quarter of 2024, Google’s ad sales grew to around $72.46 billion – about 10.6% higher than a year earlier. This was a bit slower than the year-ago growth rate, but still far more than many analysts expected. In the first quarter of 2025, ad revenue was $66.89 billion, up 8.5% from Q1 2024. These figures include money from both Google Search (and other search ads) and from YouTube ads.
Overall, Google’s ad income continues to climb, but with some headwinds. One factor is that the comparison is against a very strong 2023. For example, CFO Anat Ashkenazi noted that late 2023 saw unusually high ad spending in Asia-Pacific (APAC) – driven in part by big retailers there – so it makes growth in early 2025 look smaller. Another challenge comes from outside Google: President Trump’s new trade policy (raising duties on small Chinese imports) may reduce U.S. ad spend by companies like Temu and Shein, which had been big Google advertisers. On the plus side, the U.S. election cycle fueled a surge in YouTube ad spending in late 2024.
Despite such headwinds, analysts say Google’s ad sales are beating forecasts. As one market watcher noted, Google’s ad revenue growth “was still above analysts’ expectations”. Another analyst from Edward Jones pointed out that “search revenue growth continues to be strong” despite concerns about AI eating into search traffic. In fact, Google reported search (and related ads) revenue of roughly $54 billion in Q4 2024 – up about 12.5% year-over-year. YouTube ads were about $10.47 billion (up 13.8%). This shows that both core search ads and YouTube ads are still growing.
Google also told investors that AI is boosting user engagement. CEO Sundar Pichai highlighted new search features like “AI Overviews” (automated answers at the top of the page) and “Circle to Search” on phones. He said these tools are driving higher search usage worldwide. In internal documents, Google executives admit that AI poses both risks and opportunities for search. One example: Nick Fox, Google’s VP, was quoted as saying the worst-case scenario is that Google loses search traffic to ChatGPT, a rival AI chat service. Google therefore needs to offer an AI experience of its own (like Gemini) to keep users in its ecosystem.
In summary, Google’s ad business is healthy but growing more slowly. 2024 saw about $307 billion in total revenue (up 14%), led by search and YouTube ads. The recent quarter’s 8–11% growth rates are slower than the 15% spikes of early 2023, but Wall Street is still mostly happy – in part because AI investments seem to be paying off. Google even boosted its capital spending plan to $75 billion for 2025, betting big on AI infrastructure. The question is: will AI-powered features help Google sell more ads in the future, or will they erode its ad clicks and impressions?
Google’s AI Strategy: Gemini, Search, and Workspace
To answer that, we need to understand Google’s AI playbook. In 2024, Google launched Gemini, its new family of large language models (LLMs). Unlike the original Bard AI, the Gemini series is designed to handle text, images, and even audio all at once. For example, Gemini 2.0 (released December 2024) added native image and audio understanding. By early 2025, Google had moved to Gemini 2.5 and “Gemini Pro,” which Pichai called “our most intelligent AI model” yet.
These models are not just for labs. Google is integrating Gemini into search and many apps. A big part of Google’s strategy is AI in Search. Last year Google introduced “AI Overviews” in Search: for certain queries, Google now shows an AI-generated answer box above the usual list of links (in both mobile and desktop search). That box often has a “Learn more” link to sources, but it can satisfy the user directly. At the 2024 developer conference, Google also unveiled “AI Mode” for Search (a more conversational interface). In May 2025, Google announced that AI Mode will start showing ads inside its answers, to make search with AI more profitable.
Google’s own blog highlights these moves. In its Q4 2024 letter, Alphabet said “AI Overviews and Circle to Search are increasing user engagement” in Search. On Google’s official blog, Pichai or other leaders often talk up Gemini. For instance, Sundar Pichai noted that Gemini is rolling out across products and that it’s a “unique full stack approach to AI”. Google also announced AI features in Workspace apps: in Gmail, Docs, and Meet. For example, new Gemini-powered reply suggestions in Gmail will “sound authentically like you” by using your writing style. Google Meet is getting real-time translation via AI. Google even has a dedicated “Gemini app” and NotebookLM for research. The Workspace team promised Gemini-based upgrades in Docs, Sheets, and other tools. In short, Google is sprinkling AI everywhere: search, email, video calls, note-taking – even Android phones (Circle to Search) and Maps.
The goal is clear: keep users on Google’s platforms by offering a smarter, more helpful experience. If people start getting instant answers from Google’s AI, they might stay within the Google ecosystem instead of going to ChatGPT or Bing. And if the AI can surface useful ads or shopping suggestions along the way, Google can still earn from ads or new services. As Google’s VP of Ads Vidhya Srinivasan said recently, **“The future of advertising fueled by AI isn’t coming — it’s already here”**. She explained that Google is rethinking ads to fit into this AI world (ads that help with discovery, rather than interrupt answers). Google’s message to advertisers is that AI tools will improve ad targeting and let brands appear in new formats (for example, ads alongside AI answers or in AI-only “compact” search views).
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| A close-up of a circuit board highlighting the letters “AI |
How AI Might Affect Ad Clicks and Impressions
The big question is: if Google Search delivers answers directly, will people click on ads less often? In web search today, users usually type a query and click on one of the blue links – many of which have ads nearby. But if an AI answer gives the info immediately, users might not scroll down to the links. Early data suggest this can cut clicks sharply. A study by SEO tool company Ahrefs found that queries with Google’s AI-overview boxes had about 34.5% lower click-through rates (CTR) on the top results compared to similar queries without AI answers. In other words, many users stopped after reading the AI answer instead of clicking on a website. Other reports note that on mobile, half of the traffic to websites disappeared when an AI answer was shown, and on desktop about a third of clicks vanished.
This drop in CTR likely means fewer ad impressions too. Early marketing research confirms it. A recent report by a digital agency (Seer Interactive) noted that ads are “more frequently displayed below AI-generated summaries, decreasing ad visibility and CTR.” If the AI summary box appears at the top, ads either move down or sometimes don’t show at all. For example, a search for “breast cancer symptoms” now shows an AI summary at the top (see figure), and any ad would be pushed below the fold. Seer’s analysis advises advertisers to make their ads stand out (with special offers or rich formats) because generic ads will be overshadowed by AI answers.
In short, generative AI can reduce the number of ad impressions and clicks on Google. Users who once clicked through to sites and ads might stay on the Google page, satisfied by the AI text. It’s similar to what happened when Google introduced rich answer boxes or featured snippets years ago – many sites saw drops in traffic. Now the effect seems even bigger with full AI replies. Some experts warn of this trend. For instance, industry reports have pointed out that when AI Overviews are present, users may read those and skip the links, cutting traffic significantly.
On the other hand, Google is moving to bring ads into the AI context. Google’s new AI Mode will test ads inside the answer boxes, and Google has already added some ads into AI answers on mobile. This means some revenue can still be captured even if users stick to the AI interface. Plus, Google is building tools that help advertisers create AI-driven campaigns (for example, turning product images into video ads, or letting small businesses use generative text for marketing). In AI Mode, instead of the normal ads-on-top picture, Google will find new ways to blend ads with AI content. As one tech article noted, Google’s push to show ads in AI Mode “builds on insights” from testing with AI summaries, so that AI search can become profitable. In other words, Google is inventing new ad formats around AI.
Industry analysts and experts are divided on how big the impact will be. Some see risks of lost revenue, while others highlight opportunities to grow in new ways. A common theme is balance. For example, Edward Jones analyst David Heger told Reuters that despite all the AI hype, **“search revenue growth continues to be strong”**. In public comments and filings, Google has stressed that AI features are already boosting user engagement (1.5 billion people using AI Overviews monthly, per Pichai) and that these new features can deepen user loyalty. In its latest earnings call, Google argued that customers still value clicks and ads – but that Google will make those ads better by using AI.
Even so, some critics warn that this model has limits. One concern is that Google’s long-term fate depends on whether people prefer to search with AI chatbots. Early adopters of ChatGPT and Bing’s AI chat say they like the instant answer style for simple questions. If habits shift, overall search queries (and thus ad opportunities) could shrink. Google insiders have reportedly acknowledged this threat: they see losing even a small fraction of search traffic to AI as a serious risk. On the other side, proponents argue that Google’s massive data and AI skills could actually strengthen its ad business. For instance, Google can use AI to improve ad targeting and make adverts more relevant, or create automated ads that fit AI conversations. Google may also launch new shopping and transactional ads that work with AI assistants. In a way, ads could become more embedded and less disruptive – a perspective hinted at by Google’s ad chief, who said Google is reimagining ads that “help customers discover a product or service” rather than interrupt them.
Outside Google, advertising leaders are also watching these trends. A recent piece by MarketingDive described Google’s situation as “sluggish” ad-growth amid AI changes, noting that even big spikes (like election ads) aren’t enough to offset the tough comparisons. Some marketing experts see early signs that brands will pay more for placement in AI summaries, or for being featured in the new AI answer templates. Others think the AI shift might shorten the search-ad funnel, so advertisers will need to focus on quick conversions (for example, lead forms or direct sales) instead of clicks. There’s also talk of “private search” trends where people might use voice assistants (Alexa, Siri) more, which again changes how ads appear. In sum, many experts agree it’s an open question: AI could dull Google’s ad dominance if not managed carefully, but it also offers Google a chance to add value and charge for new services.
Competitors: OpenAI, Microsoft, Amazon
How does Google’s move stack up against rivals? On one side is OpenAI (maker of ChatGPT). OpenAI’s service is built purely around generative answers. It famously has no built-in ads, but Microsoft recently announced it will offer a way for brands to appear in ChatGPT (small experiments with sponsored answers). For now, ChatGPT’s threat to Google is mostly about user attention – not ad revenue for OpenAI. But it pushes Google to innovate fast. Google’s quick rollout of Gemini and Search AI features is widely seen as a reaction to ChatGPT’s popularity.
Microsoft is another big competitor. It has integrated ChatGPT technology into its search engine (Bing) and created “Copilot” assistants in Windows and Office. Bing’s share of search remains much smaller than Google’s, but Copilot could lure users into Microsoft’s ecosystem. Microsoft also competes in the cloud with its Azure AI services (like Azure OpenAI and its own models). In ads, Microsoft sells search ads on Bing and LinkedIn, and it too is introducing AI-driven ad tools. Recently Microsoft bragged that Bing Chat (Copilot) has been used by millions and is free on Windows PCs, pushing Google to respond. If people start using Bing Chat for quick answers, Google could lose searches. However, Microsoft’s core business is software and cloud, so its motive isn’t ad revenue alone.
Amazon enters the picture in two ways. First, Amazon’s Alexa voice assistant now offers some generative answer capabilities and is a huge driver of shopping and local ads. More importantly, Amazon Web Services (AWS) is powering AI for many companies. AWS sells AI models (through Bedrock, SageMaker, etc.) to businesses, including some Google rival companies. If AWS makes it cheap to build AI tools, that increases the pace of AI adoption across the economy. On ads, Amazon’s own ad business (product ads on retail and elsewhere) is the third-largest after Google and Meta. If Google falters, advertisers might shift dollars to Amazon’s platforms. Amazon also announced its own AI assistant for shopping. However, Amazon lacks a general web search engine, so its impact on Google’s search ads is indirect (mostly through tech competition and its growing ad platform).
Finally, Meta (Facebook) is worth a quick note. Meta is investing heavily in AI research and has its own LLaMA models. It’s also integrating AI into Facebook and Instagram (e.g., AI chats in WhatsApp). While Meta’s ads business is different, any shift in how people find information (AI over search, more time in chats) could also affect how ads are placed across the web. Google’s strategy seems to consider Meta a prime rival in advertising spend, so any AI use on Facebook or WhatsApp that holds user attention is something Google watches closely. (Meta’s CEO Mark Zuckerberg has said they will put ads in their AI chats too, but that’s for future).
Putting it all together, Google’s push into AI is a high-stakes bet. On the risk side, the data so far indicates that when AI answers appear, people click on fewer search results and ads. If that trend holds, Google’s traditional ad model could generate less revenue per query over time. Some worry that Google’s most profitable pages (e.g. quick info searches) might yield near-zero new clicks in the future. There’s also execution risk: Google must manage how it inserts ads into AI features without annoying users. Any misstep could drive people to third-party AI or search services.
On the opportunity side, Google is betting that AI will make its platforms “stickier”. If users love the Gemini-powered search and tools, they may use Google even more, giving Google more chances to serve ads or sell subscriptions. For example, in Workspace, Google can sell premium “AI tools” to businesses (it already offers higher-tier “AI Pro” plans). In search, Google could charge more for premium placement inside AI answers or for voice commerce in partnerships. Google’s CEO and ad VP have highlighted new ad formats and automated tools as growth areas. In early 2025, Google even reported cloud sales growing 28% – partly due to demand for AI infrastructure. That shows investors see multiple engines of growth.
Ultimately, experts say the picture is mixed. Many agree that AI won’t kill Google’s ads overnight, but it will force change. One marketing veteran put it this way: “The ad industry is evolving, and Google is too, but it’s not clear if that’s good or bad for revenue yet.” The shift will likely be gradual. Google’s own statements to investors emphasize the positives: “leadership in AI and momentum across the business”, and that its core ad machines remain “strong”. Outside observers see it as a balancing act – Google must keep innovating in AI to stay ahead, while safeguarding the cash cow that funds all those AI labs.
Google’s rapid expansion into generative AI is one of the tech world’s biggest stories. By deeply integrating AI (through Gemini and related features) into Search, Workspace, and more, Google aims to transform how people find and use information. This could reshape the fundamental online advertising model. The early signs are clear: AI answers mean fewer traditional ad clicks, and that is a risk to Google’s ad revenue stream. But Google is moving fast to adapt – inventing new ad formats, extending ads into AI-driven experiences, and using AI to make ads more effective. The company also touts that users love the new features, which could boost overall engagement.
As one analyst put it, Google is “backed by a unique full-stack approach” – meaning it controls everything from the chips (TPUs) to the apps (Search, Chrome, Android). That gives it tools that others don’t. Yet, competitors like OpenAI and Microsoft are nipping at its heels, and advertisers will watch closely where their budgets flow. The truth may be in the data next quarter or year: If Google can keep ad revenues climbing while innovating in AI, it will have proven the balance can hold. If not, Google may have to rethink how it monetizes a future where answers are delivered by AI, not blue links.