Publishers Grapple with Costs Amidst Google's Transformation
In a strategic meeting last October, senior executives at Alphabet discussed the potential consequences of losing search traffic to competitors like Gemini and ChatGPT. The concern stems from the increasing popularity of AI-generated summaries at the top of search results, which have significantly reduced the likelihood that users click through to traditional websites.
According to multiple recent studies, including a comprehensive report by the Pew Research Center, only about 8% of users presented with AI summaries clicked on a traditional search result link—about half the rate compared to search result pages without AI summaries, which see click-through rates near 15%. Moreover, users encountering AI summaries are more likely to end their browsing sessions entirely, with 26% stopping after seeing the summary versus 16% without it.
These shifts in user behaviour have raised concerns among publishers who traditionally rely on search-driven site visits for revenue and visibility. The AI summaries tend to satisfy user queries directly on the search page, thereby "cutting off the oxygen" to the web ecosystem by reducing user engagement with original content websites. Users also rarely click the source links embedded within AI summaries themselves—only about 1% of the time—which further limits traffic redistribution to publishers.
While Google disputes that AI Overviews reduce overall web engagement, emphasizing that these features improve user experience and create new ways to discover websites, real-world browsing data suggests a significant erosion of traditional search traffic to publishers since their deployment.
In the financial realm, Alphabet's Q2 earnings report shows a 12% year-on-year increase in Google Search revenue, bringing in $54.19 billion. However, the long-term effects of AI-generated summaries could potentially impact the revenue streams of traditional internet publishers.
To counter this, some publishers are experimenting with 'hedged gardens' to find an alternative to Google for visibility and traffic. Meanwhile, Alphabet has increased its 2025 spending forecast by $10 billion, bringing the total to a record $85 billion, primarily being poured into AI infrastructure.
By the end of 2025, the Magnificent Seven (including Google) are expected to have spent over $560 billion on AI in two years. Despite the increased spending, analyst Ian Whittaker notes that spending on AI is increasing, but there is no material impact on revenue growth yet.
The revenue generated from this investment is expected to stand at just $35 billion. This discrepancy between spending and revenue could be a cause for concern for investors eager for the fruits of the promised AI revolution.
In summary, the long-term effects of AI-generated summaries atop search results appear to include:
- Nearly halving user click-through rates to publisher websites.
- Increasing the likelihood that users end sessions without further site visits.
- Potentially reducing the traffic and revenue streams of traditional internet publishers.
- Changing user search behaviour by prioritizing immediate answers over exploring multiple sources.
These shifts suggest a fundamental transformation in the search ecosystem, where direct AI answers challenge the traditional role of search engines as mere gateways to websites, raising important questions about the future economics and content distribution models on the web.
- The increasing use of AI-generated media, such as summaries at the top of search results, has the potential to alter the business model of traditional internet publishers by significantly reducing their click-through rates and traffic, posing a challenge to their revenue streams.
- As more companies, including Alphabet, invest billions of dollars in AI technology, the discrepancy between the substantial spending and relatively low returns on investment could raise concerns for investors who expect a promised AI revolution to bring substantial returns.
- In the media landscape, news outlets and publishers are exploring alternative strategies like 'hedged gardens' to find another avenue for visibility and traffic, as the increasing popularity of AI-generated summaries and direct answers could change the way users search for and consume information, potentially posing challenges for publishers' business models.
