Google’s search engine has long been a quiet piece of everyday infrastructure, the tool millions of people reach for when they need an answer, a direction or a health question answered quickly. This week, the company behind it confirmed that the way people find information online is changing, and that the change is already reshaping the business model that has kept those services free and widely available. Google-owner Alphabet lost just over $500bn (£374bn) in value on Thursday after revealing that its own artificial intelligence summaries were hitting search advertising revenue.
The admission came from chief business officer Philipp Schindler, who said Google’s “AI mode”, where the search engine answers questions conversationally, was eating into the money the company makes from the ads that appear next to results for traditional search questions. For the public, the significance is straightforward: advertising has long paid for the search services people use at no cost, and any sustained shift in how those services are funded could eventually affect what users see, how results are presented, and how freely information is accessible.
Schindler nonetheless told investors he felt “very good about our trajectory” with an AI-focused version of the search engine. Google’s long-held role in answering the world’s questions has been challenged by the AI boom, with millions of people now turning to programs such as ChatGPT and Claude instead.
Kim Scott, who formerly led Google’s advertising business, offered a framing of the company’s strategy when she spoke to the BBC’s Today programme. She said Google would “rather eat its own lunch than allow someone else to eat their lunch” by having its own AI summaries hit its search revenue. Google, she noted, was founded on the idea of making long-term bets on technology, even when those bets hurt the firm in the short term. “I think they’re making a long-term bet on AI,” she said.
The financial backdrop to this shift matters for anyone who relies on these platforms. In results published on Wednesday, Alphabet revealed that total revenue grew 25% in the three months to the end of September compared with the same period last year, reaching $127.6bn. But the firm made less money than analysts had predicted, particularly in its advertising arm, and that shortfall spooked many investors. Shares plummeted more than 12% to a six-month low following the results, and by the end of Thursday the company’s total stock market value had fallen to $3.46 trillion from $3.97 trillion the day before.
Tracy Woo, a principal analyst at Forrester, said Alphabet’s disappointing Search business results “highlight the challenge of funding massive AI investments while maintaining the strength of established businesses.” That tension, between building new technology and protecting the services people already depend on, is now playing out across the industry.
Meanwhile, Microsoft and Amazon also issued updates this week, and both joined Google in plans to keep spending huge sums in the ongoing AI race. Investors appeared dismayed at the impact those plans are having on each company’s ability to keep growing its core lines of business.
Amazon’s stock took a hit on Thursday, with shares falling 6% in after-hours trading. Alongside quarterly sales growth of 11%, which reached $201bn, the company shared a striking cash flow figure of negative $42bn. That number shows Amazon is not only spending more money than it makes, but that the spending has increased six-fold over three months. Chief executive Andy Jassy defended the outlay, saying the business had the chance at not one but two businesses that could each bring in $1 trillion in the future, pointing to its cloud services and retail operations. On a call with financial analysts he repeatedly mentioned the opportunity in making and selling its own computer chips, and in its AI developer platform Bedrock, which gives paying users access to most major AI models and tools. “One of the lessons we’ve learned over 20-plus years is that there is not one tool to rule the world,” Jassy said. Pressed several times on the spending, he admitted it “would be more convenient” if it were spread over the next 25 years, adding, “That’s not the world we live in.” He argued the plan would “forever change the size, the revenue, the free cash flow of Amazon.”
By contrast, Microsoft’s reception was calmer, with shares falling less than 1% on Thursday. The company, one of OpenAI’s largest investors, spent around $5bn less on AI-dedicated investments and revealed plans to cut thousands of workers. Revenue grew 19% year on year to $92.3bn, with its cloud business up 30% at $63bn. Chief executive Satya Nadella said use of Copilot, Microsoft’s AI chatbot, had seen “automated tasks nearly double since July” as daily users grew 500% from a year ago.
For the public watching these giants reshape how information and services are delivered, the underlying question is which promises will hold. As Woo put it, Microsoft’s results reinforce that enterprise demand for AI remains strong, but they also highlight a much bigger question facing the technology industry: where AI value will ultimately be captured.