How do you kill your own business? You build a tool that sits on top of your most profitable product and diverts customers away from your money-maker — that’s exactly what happened to Yahoo!, and now Google’s feeling it, too.

Search advertising growth at Google slowed more than expected in the third quarter, and parent company Alphabet blamed people's growing use of AI Mode, the chatbot-style version of its search engine. Alphabet's ad revenue came in at $ 82 billion, about R1.35 trillion, short of analysts' estimate of $ 83.4 billion. It also reported negative free cash flow of $ 9.1 billion, roughly R150 billion, as it spent heavily on AI.

The shares fell 10% in after-hours trading on Wednesday.

Chief business officer Philipp Schindler said the slowdown in search ad growth was larger than expected because more people are using AI Mode, where Google is still experimenting with ads. He said Google would begin rolling out ads in AI Mode to international markets.

It was Alphabet's second quarter in a row of negative free cash flow, the money left after running the business and investing in it. In the previous quarter, it burned $ 5.9 billion, the first time it had gone negative in 22 years as a listed company. Total revenue was $127.6 billion, about R2.1 trillion, just below forecasts, and profit available to shareholders fell 25% to $26.17 billion.

Google Cloud was the bright spot. Its revenue more than doubled to $30.71 billion, about R505 billion, helped by sales of Google's own AI chips, and its order backlog has grown to $561 billion.

Alphabet expects to spend $195 billion to $205 billion this year on AI data centres and equipment, roughly R3.2 trillion to R3.4 trillion, and more in 2027. Microsoft, which also reported on Wednesday, saw its shares rise more than 5% after its cash flow beat expectations.

TechCentral carried Reuters' report on the results. "In a market worried about AI cannibalising the franchise, investors need to see search accelerating, not decelerating," said Dave Wagner of Aptus Capital Advisors. Jeremy Saltsburg of Check Capital warned that a $300-billion spending figure next year could scare the market now that free cash flow is negative.

Analysts at Bernstein questioned whether Google rushed out its new Gemini 4 Carbon model, unveiled on the morning of the results, to offset the weaker numbers.

For two decades, the deal behind Google was simple: people searched, saw a list of links with ads beside them, and clicked. AI Mode changes that by answering the question directly, which means fewer clicks on ads and on websites. Google's own results now confirm that shift is hurting its most profitable business, even as it builds the replacement.

For South African businesses, this matters in two ways. First, the place where customers make up their minds is moving into AI answers, both on Google and on ChatGPT, which just started showing ads here. Google says AI Mode ads are coming to international markets too, so expect a new kind of ad to appear in local search.

Second, if your website depends on search traffic, plan for fewer visitors from search and focus on being the source AI answers draw from.

For investors, this was one of the earnings tests we flagged in our piece on China's AI crash, and it shows that even the biggest AI builders are now spending more than they earn.

You might also like our piece on Airbnb's AI search, Meta's Muse Wonder, and data centres as war targets.

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