Can Google Beat AI Rivals and Keep the Ad Cash Rolling?
Tech giant Google’s advertising business continues to drive its financial performance with the company posting the highest ever ad revenue of $65.85 billion for Q3 FY24. It constitutes nearly 75% of its total revenue. Amid the company’s expansion drive through Google Cloud and AI innovations and investments, advertising revenue remains the core of its operations. Ad revenue increased 10% year-on-year, indicating the company’s dominance in search-based and video ads. Search revenue alone contributed $49.39 billion to the total, a 12% increase from last year. YouTube also performed well, earning $8.92 billion for the quarter. Sundar Pichai, CEO of Alphabet which owns Google said, “The momentum across the company is extraordinary. Our commitment to innovation, as well as our long-term focus and investment in AI, are paying off with consumers and partners benefiting from our AI tools.” QuarterAd Revenue (in millions)Year-over-Year % ChangeQ3 2024$65.810.41%Q3 2023$59.69.48%Q3 2022$54.42.54%Q3 2021$53.1– The company’s reliance on ad revenues is nothing new. Over the past few years, its ad revenues have been on an upward trajectory with Q3 marking the highest ever earnings. Google has successfully leveraged its search engine, user data and AI features to effectively manage the ad call-to-action behaviour. The company believes the ads on AI Overviews, a feature that summarises content on the search query and displays it under the search box, have allowed users to quickly connect with relevant businesses and services, thereby making the ad process more relevant. Rising Competition in the Ad Space However, its heavy reliance on ads makes its business challenging in a competitive landscape. The rise of AI driven search engines, driven by ChatGPT and Perplexity, poses a significant threat to Google’s search and ad revenue dominance. Both ChatGPT and Perplexity are releasing chrome extensions for their search engines. Besides, Google’s main competitor, Meta, too is reportedly entering the search engine space. The latter has shown consistent progress in the last two years with its ad revenue for Q3 FY24 touching $39.9 billion, an 18.7% jump year-on-year. Perplexity co-founder and CEO Aravind Srinivas posted on X about Google’s approach to raking up ad revenues despite his own company entering the search space. With these developments, Google cannot afford to lose its focus on the ad revenue nor ignore the emerging competitors. Source : X Meta is developing an AI search engine to answer queries on Meta AI. Currently the company is relying on Google and Microsoft’s Bing for the same. It is obvious that dominant players are trying to build their ecosystem to ensure their customers stay on their portal with minimal dependency on competitors. Meta has the advantage of a large user base and data from Facebook and Instagram platforms, so training the AI search platform might not be problematic. Meta’s web crawler is already scraping data for AI training. The company has even partnered with publications such as Reuters to bring news-related answers. AI Powers Ads Even as the company’s Q3 FY 2024 results surpassed analyst expectations in the top and bottom lines, with the consolidated revenues at $88.3 billion and Google Cloud revenue increased 35% to $11.4 billion, advertising income still remains a key growth driver. Google Cloud revenues was led by accelerated growth in Google Cloud Platform (GCP) across AI Infrastructure, Generative AI Solutions, and core GCP products. Pichai credited their long-term focus and investment in AI as key drivers of success for the company and its customers, even highlighting the Gemini API’s 14x growth over the past six months. Google claims that both customers and advertisers have found AI features to propel the user experience across its products and services. Advertisers have been using Gemini to build and test ad creatives at scale. Google’s latest text-to-image model, Imagen 3 was updated in Google Ads. The model was tuned with ads’ performance data across industries to aid customers with high-quality images for their campaigns. It’s interesting to note that AI-powered feature integration on search has also been economical. Pichai mentioned that when the company first began testing AI Overviews, they had lowered the machine costs per query ‘significantly,’ and now, in 18 months, the costs have been reduced by more than 90%. “AI is expanding our ability to understand the intent and connect it to our advertisers. This allows us to connect highly relevant users with the most helpful ad, and deliver business impact to our customers,” said Philipp Schindler, SVP and CBO at Google, on the earnings call.
The rise of AI-driven search engines, driven by ChatGPT and Perplexity, poses a significant threat to Google’s search and ad revenue dominance.
The rise of AI-driven search engines, driven by ChatGPT and Perplexity, poses a significant threat to Google’s search and ad revenue dominance.
["ChatGPT", "Generative AI", "Google Ads", "Meta", "Perplexity", "search"]
["Go", "ChatGPT", "Meta", "Perplexity", "Meta AI", "GCP", "Google Ads", "AI", "API", "RAG", "Aim", "search", "generative AI", "Generative AI", "R"]
["AI", "generative AI", "ChatGPT", "Meta AI", "Aim", "RAG", "GCP", "R", "Go", "API"]
As a rare blend of engineering, MBA, and journalism degree, Vandana Nair brings a unique combination of technical know-how, business acumen, and storytelling skills to the table. Her insatiable curiosity for all things startups, businesses, and AI technologies ensures that there's always a fresh and insightful perspective to her reporting. She now hosts her tech segment 'Point Break' on AIM Tv.