Google just admitted its AI answers are costing clicks

On Thursday Alphabet, Google’s parent company, had the worst day in its history on the stock market. The shares closed down about 12.6%, and roughly $500bn of value disappeared in a single session. The trigger was its quarterly results, and one line in particular from Philipp Schindler, Google’s chief business officer. AI Mode is the chat-style version of Google search, which answers your question in full instead of giving you a list of links. Schindler said it was one reason search advertising came in below forecast, because it shows fewer ads.

For me, that’s Google confirming what a lot of us in marketing have suspected for a while. When Google answers the question itself, at the top of the page, fewer people scroll down and click. Fewer clicks means fewer places to put an ad.

Why did Google’s share price fall?

Search advertising, still Google’s biggest business, brought in $63.4bn in the quarter. That’s up 12% on last year, but growth was 17% the quarter before and analysts had expected more. Google Cloud, which rents out computing power to other businesses, roughly doubled. Google also spent a record $51.4bn in the quarter, most of it on the data centres and chips behind its AI. That spending goes up again next year. The Motley Fool has the full breakdown.

So investors saw the money going out on AI, and the search business that pays for it slowing down, partly because of that same AI.

Why are advertisers still spending more?

This is the part I find most interesting. Clicks are getting harder to come by, and yet the money advertisers put into Google search still grew by 12%. I think a lot of businesses are spending harder to make up for the clicks they’ve lost, rather than stopping to work out where those clicks have gone, or whether there’s a cheaper way to get them back.

The people I see handling this well are doing the opposite. They’re moving some of what would have gone on search ads into organic SEO. That means building out the content on their own websites so it ranks higher. It also makes it more likely to be quoted when someone asks an AI tool a question. If the answer now sits at the top of the page, you want to be the source it’s built from. I think that’s what should be happening anyway, so the size of the share price drop is curious to me. This shift has been coming for a while.

What should a marketing director do now?

I wouldn’t touch the budget yet. The first thing I’d look at is conversion rate, the share of visitors who go on to buy or enquire. Say you’re getting fewer clicks, but they convert at the same rate or better. Then the AI answer may simply be filtering out people who were never going to buy. If conversion rates are dropping too, that’s a different conversation. Either way, find out before you move money.

Then I’d start tracking how visible the brand is inside AI answers. That means how often Google’s AI results, ChatGPT and the others mention you or link to you when someone asks about what you sell. I’d check that every fortnight for the next few months, and look for changes rather than a single number. It’s the same shift I wrote about in the checkout leaving your website: more of the customer’s journey now happens inside someone else’s AI.

Google will almost certainly fix its side of this by putting more ads inside AI Mode. Schindler said early tests have “shown promising results”. When that lands, the businesses in the best position will know what their clicks are actually worth. They’ll also know whether the AI is quoting them or their competitors.