Google is testing the placement of ads inside AI chatbot conversations in an aggressive move to protect its bread and butter: search ads.
According to Bloomberg, Google has begun embedding ads directly into conversations with artificial intelligence (AI) chatbots from startups, including iAsk and Liner. It’s an expansion of Google’s AdSense for Search network and sets the stage for a new era of AI-powered monetization.
In the pilot, Google inserts contextual ads into real-time chats between users and AI chatbots. By doing so, the company ostensibly seeks to defend its turf since search ad revenue comprises 56% of its total revenue, according to its first-quarter earnings results.
In April, Google held a 90% market share in search, according to Statcounter. The picture is reversed when it comes to AI chatbots: Google Gemini comes in at 2.3% compared to OpenAI’s ChatGPT at 84.2%.
This is a classic example of Google facing the “innovator’s dilemma,” a concept conceived by the late Harvard Professor Clayton Christensen that explains why successful companies often fail when facing disruptive technologies.
According to the theory, incumbents facing disruptive technologies often offer existing customers improved versions of what already works. Smaller companies that use the new technology serve niche or small markets first before improving and becoming good enough for the mainstream — and take over from the incumbent.
“They do face the innovator’s dilemma today,” said Nick Cummings, an analyst at investment research firm Intelligent Investor, during a recent podcast episode. “They’re being attacked from multiple angles with large language models … that are using AI to provide a better experience in some respects than their traditional search engine.”
“Google is experimenting and integrating their own AI as well but it’s a huge risk to the business,” Cummings added. In March, Intelligent Investor made a call to sell its holdings in Google parent company Alphabet.
Kaveh Vahdat, president of marketing firm RiseOpp, told PYMNTS that Google’s move is “less about short-term monetization and more about safeguarding its long-term control over the discovery layer of the internet.”
As users shift to AI chatbots, Vahdat said, Google risks losing the behavioral data and ad real estate that underpin its business model. “By preemptively commercializing chatbot interactions, it is trying to reassert that control. But doing so at a time when its market dominance is already under antitrust scrutiny could accelerate regulatory pressure.”
Google lost two antitrust cases brought by the U.S. government over its anticompetitive practices as it monopolizes the search and online tech markets. Google plans to appeal both cases.
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An Answer to the AI threat
Google’s dominance in search — which generates of nearly $200 billion in ad revenue — is under attack. Rival generative AI chatbots from companies like OpenAI and Perplexity AI are attracting users with more fully formed responses compared to traditional web links and search result pages, which is a core source of Google’s ad revenues.
By extending AdSense into chatbot experiences, Google hopes to keep advertisers within its ecosystem — even if user behaviors shift.
Google’s partners, iAsk and Liner, already show ads embedded within or beneath their chatbot responses, according to Bloomberg.
For example, iAsk displays sponsored content before prompting users to continue the conversation, while Liner tailors ad placement to student research queries — a strategy it says increases click-through rates compared to other generative AI platforms.
However, Google should tread carefully because users expect an ad-free experience in AI chatbots compared to traditional search.
“Ads, in general, make the consumer experience worse,” said Daniel M. McCarthy, associate professor of marketing at the Robert H. Smith School of Business, University of Maryland, College Park.
“So while they surely are looking at ads as a way to defray the enormous costs of LLM training and inference, in a bid to improve their possibly negative contribution margin, they are highly incentivized to not cede further market share to their already-dominant competitors,” McCarthy told PYMNTS.
One mitigating practice would be to introduce ads in categories where consumers would be expecting them, such as shopping and travel, McCarthy added. Another idea would be for Google to introduce an “ad-free toggle” for a fee to give users a no-ads experience, he said.
Google isn’t the only one experimenting with ads in chatbots. Perplexity AI, for example, is working directly with companies that want to place ads in its AI chatbot, according to Bloomberg. It already has a program that lets publishers sponsor follow-up questions related to a query.