Big Tech earnings this week put a spotlight on the monetization dilemma at the heart of AI-integrated search. The growth of Google’s AI Mode is proving to be a double-edged sword: Investments in conversational search are fueling Google’s fastest year-over-year search query growth in five years, but the company’s advertising revenue growth slowed to 12%, its slowest rate in five quarters.

Google hasn’t lost its advertising engine. Search revenue is still growing. But AI is beginning to decouple query growth from monetization growth while simultaneously reducing the referral traffic that has historically supported monetization across the open web. For example, Reddit CEO Steve Huffman said Google search referrals declined “meaningfully” in Q3 because of consumers staying within AI Mode and AI Overviews, rather than clicking through to publishers’ sites. Reports from Reddit’s earnings call put the October decline at more than 1 million referrals per week on average.

More Ads Could Put AI Search’s Trust At Risk

For Google, AI Mode currently has far fewer ads than classic search, so an obvious solution is to add ads to AI-integrated results pages. The company announced plans to scale ads in both AI Mode and AI Overviews across a wide range of queries, expand ads into international markets for the first time, and launch multi-turn ads in AI Mode, where sponsored results appear in follow-up questions, across the US.

While Google says click-through rates are similar between sponsored and organic search results in AI Mode, just adding more ads to AI-integrated search risks the trust consumers have in answers, which is what drives query growth. According to Forrester’s data, 70% of US and UK consumers who regularly use answer engines trust the answer provided by the answer engine. That could erode if consumers begin to question whether advertising and sponsored results influence the answers AI generates.

The Monetization Gap Will Accelerate Conversational Advertising

This tension reinforces one of Forrester’s latest media predictions: Conversational ads will become a multibillion-dollar channel. We expected answer engines to turn aggressively toward advertising as user growth moderates and engine providers shift their focus from acquiring net-new users to monetizing their installed base. This week’s earnings suggest that this pressure is already here.

Increasing ad density is one lever. Developing advertising that actually performs in a conversational experience is another. That will require more than slotting classic search ads into AI-generated answers. Consumers increasingly ask questions, refine their needs through follow-up prompts, and make decisions without navigating through lists of search results or navigating to vendors’ websites. Advertising must work differently in that environment.

Google is responding by expanding ads in AI Mode and AI Overviews across more users and queries and experimenting with new ways to monetize AI-mediated search. Likewise, OpenAI is shifting ChatGPT from an incremental user growth story to a yield management story by adding ads that are visually separate from organic responses. After all, trust in ChatGPT’s answer is what makes OpenAI’s ad inventory valuable in the first place.

Don’t Wait For Conversational Advertising To Mature

Marketers shouldn’t treat conversational advertising as simply another media channel to test. As they continue to build out their advertising businesses, brands need to determine where conversational ads belong in their media plan, which budgets fund them, and how to measure advertising’s influence when AI mediates discovery and decision-making. Many of the Forrester clients we talk to are pulling from display budgets to test conversational advertising. In time, budgets for conversational ads may come from paid search and paid social.

There are still plenty of unknowns. Which ad formats will consumers tolerate? How dense of an ad load can answer engines support? Will conversational advertising pull meaningful spend from paid search, further threatening Google’s cash cow, or will it generate a new source of funds? And what does an impression, click, or conversion even mean when an answer engine plays the biggest role in the path to purchase?

Our 2027 research on conversational advertising will tackle these questions as this emerging channel takes shape. Request a guidance session to discuss your conversational advertising plans.

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