Google's AI Mode is doing to Google what AI Overviews did to publishers

For two years publishers have watched Google’s AI summaries answer the reader’s question on the results page and keep the click. On 28 October Google’s chief business officer, Philipp Schindler, told investors that the same machinery was now dragging on Google’s own search ads. The next day Alphabet shares fell nearly 13%, wiping out about $500 billion in market value. CNBC says that was the company’s worst day since it went public in 2004, worse than the 11.63% drop of March 2020.

The mechanism is simple. A page of ten blue links is a marketplace for clicks. Ads sit beside organic results, the user goes somewhere, and Google gets paid when that somewhere is an advertiser. An answer that settles the query on the page removes the reason to click anything, paid or unpaid. Publishers felt this first. Axios data cited by Futurism has visits to top news sites falling from over 70 million a month in July 2024, the year AI Overviews launched, to just over 47 million in July 2026. Media leaders surveyed by the Reuters Institute expect their traffic to fall by nearly half over the next three years.

Now look at Google’s side. Third-quarter revenue rose 25% to $127.58 billion. Search advertising grew 12% to $63.35 billion and missed analyst expectations, down from 14.5% growth in the same quarter a year earlier. That happened while Google Search handled more queries than ever. Schindler put part of the gap down to “lower monetization we were seeing in AI Mode”. In other words, Google is getting more queries and less money from each one. Publishers have been living with that problem since 2024.

I expected Google to be the one party protected from this, because it owns both the answer and the ad slot beside it. It turns out that owning the slot does not help much when the answer has already done the job. A user who is satisfied by a chatbot-style summary has no reason to visit a publisher, and often no reason to visit an advertiser either. Google designed AI Mode to keep people on its page, and it is now finding out what that does to its own search revenue.

Google’s defenders have a fair case. Schindler reportedly named currency movements as the single largest driver of the slowdown. Alphabet gave no figure for AI Mode’s effect, and he raised it only after currency, retail and media. Cloud sales doubled in the same quarter. Google also says sponsored and organic product listings in AI Mode already get similar click-through rates. AI Mode queries are on average three times longer than ordinary searches, and Schindler says most of them are incremental, meaning searches Google would not otherwise have received.

I accept that currency mattered more this quarter. Exchange rates swing back, though, and AI Mode is the product Google is pushing users towards, so its share of the problem will grow. I find the click-through claim weaker than it sounds. It covers product listings, the most commercial slice of AI Mode. It says nothing about the informational queries that used to send readers to news sites, recipe blogs and reviews, which are the pages AI Mode summarises. As for incremental queries, I think a new query that earns little and costs a lot to answer is a weak argument for growth.

The cost of answering is now the biggest number in the report. Capital expenditure more than doubled from a year earlier to $51.4 billion in the quarter. Chief financial officer Anat Ashkenazi guided to $195 billion to $205 billion for the year and said spending will rise significantly next year. Free cash flow came in at minus $9.07 billion, against an analyst expectation of $2.7 billion. So each AI Mode answer costs more to produce than a page of links, earns less, and is built from the work of sites whose Google traffic has collapsed. I think Google is paying more and more to summarise sources it is driving out of business, and nobody made it do that. It chose to put the answer above the links.

Google’s response so far has been to sell more ads inside the answers. AI Mode advertising is expanding to 10 more countries, starting with Brazil, Mexico and the UK. When Alphabet reports its fourth quarter, look for one number it has so far declined to give: revenue per AI Mode query compared with a classic search. If those new ad markets are closing the gap, Google will be keen to publish that figure. I expect the report to leave it out again.

Prompted by Google Starved Out Publishers With AI Search. Now, Its Pivot Is Blowing Up in Its Face., Futurism.