Google explores new ad formats within AI-powered search experience

In a move that could reshape the digital advertising landscape, Google, under its parent company Alphabet, is venturing into new territory with its AI-powered Search Generative Experience (SGE). During the third-quarter earnings announcement, Google revealed its ambition to leverage SGE not only for search but as a sustainable revenue generator. This development has the potential to redefine the role of ads in AI-driven search and transform the digital advertising industry for the foreseeable future.

Google’s third-quarter earnings, though were a drag down primarily due to slowing growth in the Cloud, was as always, positive on the Search side. Its Search business saw an 11 percent year-on-year growth, reaching a remarkable $44 billion in revenue. This growth was driven by the broader integration of AI into the search process, a strategy referred to as SGE. Google now envisions turning SGE into a revenue-generating powerhouse, with ads playing a central role.

CEO Sundar Pichai emphasised the company’s commitment to exploring native ad formats specifically designed for the SGE, setting the stage for a seamless integration of ads within this AI-driven search experience. Google’s earlier experiments with ad placements in SGE, as showcased in March, prompted concerns about the potential intrusiveness and the overwhelming presence of ads.

The key challenge lies in making advertising unobtrusive while still generating value for advertisers and enhancing the user experience. Google’s revenue from advertising, which includes YouTube ads and general advertising, continues to soar, reflecting a strong financial position that provides leeway for refining the introduction of ads in SGE.

Despite the potential for growing its ad revenue, Google is taking a cautious approach. Pichai’s statement during the earnings call indicates that Google is in it for the long haul. The company envisions a multi-year journey to evolve search and Assistant services through AI, aiming to establish SGE as the new standard for search.

While Google maintains its focus on strengthening its position as a dominant force in the digital advertising realm, it’s simultaneously bolstering other areas of its business. YouTube ads generated a substantial $7.9 billion in revenue, marking a more than 12 percent increase from the previous year.

Moreover, Google’s cloud business, which offers AI services to customers, posted impressive revenues of $8.4 billion, marking a 22 percent year-on-year growth.

These successes underscore Google’s financial prowess and its ability to explore new avenues in the AI domain while maintaining its dominant position in digital advertising. However, Google’s embrace of SGE and its potential impact on the digital advertising industry opens new questions about the evolution of ads, user engagement, and the delicate balance between monetization and user experience.