Artificial Intelligence-enhanced Google advertising operations seek further expansion
Google's business operations are experiencing a significant transformation, thanks to the increasing use of artificial intelligence (AI), as emphasised by CEO Sundar Pichai.
One of the most notable changes is the incorporation of AI-generated summaries, known as AI Overviews, into Google's search engine. These multi-sentence summaries appear above traditional blue links and have become a core part of mainstream Search globally by 2025.
The introduction of AI Overviews has led to a decline in organic click-through rates (CTR) on search results, particularly for informational queries. This decline extends to paid advertising as well, indicating potential challenges for advertisers in maintaining their reach. However, Google's own search query volumes have increased by over 10%, suggesting that AI encourages more engaged and exploratory search behaviour.
Google's Q2 2025 earnings reveal a Search revenue of $54.2 billion, a 12% year-over-year gain. Pichai attributes this growth to AI, which he believes leads users, especially younger ones, to search more, unlocking new types of queries and commercial opportunities.
To compete with AI-driven chatbots like ChatGPT, Google has launched its AI Mode, powered by its Gemini AI model. This move aims not only to rival chatbots but also to develop new advertising formats integrated within AI-driven search experiences, potentially creating fresh monetization streams for Google.
However, the rise of AI chatbots poses a significant threat to Google's traditional search model. Instead of clicking through links, users receive synthesized, direct answers, which challenges Google's classical search approach based on listing multiple sources. To retain user engagement and monetize AI-driven interactions, Google is embedding AI conversational capabilities directly into its search interface.
The shift towards AI summaries and chat-based answers could potentially reduce traffic to publishers, who rely on clicks for ad revenue, causing economic disruption in digital publishing. There are also concerns about potential information biases and echo chambers created by AI that tailor responses to user preferences, possibly impacting critical thinking and diversity of viewpoints.
Google faces the innovator's dilemma: it must embrace disruptive AI models to stay competitive against external AI chatbots, even though these models initially reduce traditional ad revenues, to secure long-term market leadership.
Despite these challenges, Alphabet's total revenue grew by 14% to $96.43 billion in 2025, surpassing market expectations. Advertising remains the primary revenue driver for Alphabet, with Google's online advertising business experiencing a 10.4% year-over-year increase in the last quarter, reaching $71.34 billion. YouTube's ad revenues also increased by 13% year-over-year to around $9.8 billion.
Google's parent company, Alphabet, is increasing its investments for data center expansion from $75 to $85 billion this year alone. The stock rose by more than 2% in after-hours trading following the earnings announcement.
In summary, Google's online advertising is undergoing significant change due to the incorporation of AI into its search products and growing competition from AI-driven chatbots. Despite potential challenges, Google's substantial Search revenue growth in 2025 suggests it is effectively managing these changes, yet the advertising ecosystem is undergoing significant transformation.
A counsellor, consulted by Alphabet's leadership, might advise on exploring new revenue streams amid the decline in click-through rates due to AI. This could involve utilising AI's potential in finance by developing innovative advertising formats integrated with AI-driven business interactions.
In the future, the integration of artificial intelligence within search engines may expand beyond chatbots to include AI-driven business solutions, revolutionising the way finance, technology, and even art are approached and understood.
