Highlights Google is testing ad placement in AI chatbot conversations to protect its $200 billion search ad business, as user behavior shifts away from traditional search. The company is facing the classic “innovator’s dilemma,” balancing the need to defend its profitable legacy business while adapting to disruptive technologies like generative AI. Google must be careful not to degrade the user experience and may need to explore selective ad categories or offer an ad-free option to avoid losing groun ...

Core Insights - Google's ad network has started displaying ads within chatbot conversations as part of its strategy to maintain a competitive edge in digital advertising amidst the rise of generative AI [1][2] Company Strategy - In early 2025, Google AdSense expanded to include ads in conversations with AI-operated chatbots after testing with startups like iAsk and Liner [2] - Google aims to monetize generative AI effectively, emphasizing the importance of feedback loops and visibility into successful ad placements [4] Market Context - Google's advertising business, particularly through Google Search, generated over $198 billion in revenue in 2024, accounting for nearly 60% of Alphabet's total sales [6] - The company faces increasing scrutiny from regulators regarding its dominance in the advertising market, particularly after a federal judge found it violated antitrust laws [6][7] Competitive Landscape - New entrants like OpenAI and Perplexity AI are challenging Google's audience share with innovative products designed to enhance user search experiences [3] - Startups are exploring advertising-based models to offset costs, with examples like iAsk showing ads below AI-generated responses and Perplexity allowing brands to sponsor follow-up questions [9][10] User Behavior - Users of generative AI tend to click on fewer links, which may complicate monetization strategies for startups relying on pay-per-click advertising [11] - Liner, targeting research-oriented users, aims to deliver a limited number of highly relevant ads, similar to early Google search ads [12]