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Google’s advertising slump continues as generative AI looms threateningly over its future

An unprecedented downturn in Google’s digital ad revenue came into sharper focus on Tuesday with Alphabet’s first-quarter earnings.

Google’s advertising slump continues as generative AI looms threateningly over its future
[Source photo: In this Sept. 24, 2019, file photo a woman walks below a Google sign on the campus in Mountain View, Calif. (AP Photo/Jeff Chiu, File)]

Google’s advertising malaise persisted during the first quarter while the internet company also grapples with advancements in artificial intelligence technology that threatens to undercut its dominant search engine.

An unprecedented downturn in Google’s digital ad revenue—the company’s main moneymaker for more than 20 years—came into sharper focus Tuesday with the release of the January-March results for its corporate parent, Alphabet Inc.

Although Alphabet’s total revenue for the period rose from the same last year, Google’s first-quarter ad sales of $54.5 billion marked a slight decrease from a year ago. That dip followed a nearly 4% decline during the final three months of last year, making this the first time Google has sustained back-to-back drops in year-over-year ad revenue since becoming a publicly traded company in 2004.

Google’s YouTube video site, a marketing magnet in recent years, saw its ad sales decrease 2.5% from last year, marking its second consecutive quarter of erosion too.

Boosted by growth in its cloud-computing division, Alphabet’s total revenue for the quarter came in at $69.8 billion, a 3% increase from last year. But the ad woes weighed on Alphabet’s earnings. The Mountain View, California, company earned $15.05 billion, or $1.17 per share, an 8% decrease from last year. More than $2 billion charges for mass layoffs and other cost cutting contributed to the earnings downturn.

Both Alphabet’s revenue and profit exceeded the tempered expectations among analysts polled by FactSet Research. That—and a $70 billion stock buyback plan—helped boost Alphabet’s stock price by 4% in extended trading after the numbers came out. The company’s shares have fallen by about 15% during the past year amid investor concerns about Google’s ad slump and worries about the company’s future prospects.

To help prop up its profits, Alphabet in January announced plans to lay off 12,000 employees, or 6% of its workforce, by far the biggest payroll purge in its history. But the layoffs weren’t completed before the end of the quarter, leaving Alphabet with more than 190,000 employees as of March 31, roughly the same number it had December 31 after the company added nearly 34,000 workers last year. Alphabet expects its workforce to reflect the recent layoffs by the end of June.

Google’s current ad slump largely reflects more cautionary spending among companies reacting to a slowdown in discretionary consumer spending amid a budget-pinching rise in inflation that’s also fueling an increase in interest rates that could culminate in a recession.

But the artificially intelligent ChatGPT bot that is being melded into Microsoft’s Bing search engine is raising fears Google could be facing a longer-term threat to its search engine that drags down ad revenue too.

If people embrace ChatGPT and Bing as better ways to find what they are looking for, it could siphon away traffic from the Google search engine that has long been the internet’s main gateway. That, in turn, would depress Google’s ad sales.

Google is trying to counter the popularity of ChatGPT with its own alternative, dubbed Bard but so far has restrained its capabilities to ensure it doesn’t behave in a way that offends its billions of users—and advertisers in the process—and to reduce the chances it manufactures misinformation and other fabrications that the technology calls “hallucinations.”

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