Google's 'Intelligent' Ad Box
Matthias in his article "Ad Infinitum"
Google made $295 billion in advertising revenue last year, out of $403 billion in total. And yet, across all these announcements – the new search box, the generative UI, Spark, the agents – there wasn’t a single mention of how any of this will be monetized. Not one word about ads. [...]
One approach, proposed by Google Research, is what you might call a “token auction.”
Basically, it's a pay-by-the-word model. This seems overly complicated to me.
Another approach – also from Google researchers – fits the new “Search” much more precisely. It’s called “prominence allocation.” Here, when a user submits a query with commercial intent, the system runs an auction that doesn’t just decide which ads appear, but how prominently the LLM writes about each one.
Simpler, probably easier to execute, and probably better results overall.
The ad is the answer. Or rather, it shapes how much space and enthusiasm each product gets within the answer.
How Google planned on paying for all the AI usage has not been an open question for a while. Ads was always the answer and none of this is a surprise for people in the know.
But there's a problem.
Costs and profit margins.
Search has gotten incredibly efficient, so much so that it costs fractions of pennies and ads can easily be sold for as little as pennies if the search demonstrates intent.
The cost of AI is orders of magnitude more expensive and someone has to pay for that. Is it going to be Google? Out of their profit margins?
Or is the intention to charge customers more? To take a lower cut?
The former seems more likely, but ad budgets have been straining for a while as Google have continued to raise their prices. The money tree isn't infinitely big and an ever increasing amount of companies have been targeting Google Zero
If nothing else. Moving away from simple search seems like this creates an opportunity for others to take the space that Google leaves in the market. Cheaper to run, simple to use, easy to monetize.
Meanwhile, what if the "Intelligent Search Box" isn't popular and decreases Google's usage?
Where does that leave Google? Huge cost for training and running AI with an audience that's not willing to use it, even when it's free?
It seems to me like they are shooting the Google Golden Goose right in the face.