Google’s latest earnings reveal an unexpected challenge: European trade policies are affecting advertising spending, while Google’s own artificial intelligence technology is changing how its search business generates revenue.

WHAT’S HAPPENING

Google is confronting two very different pressures on its advertising business: new European import duties and the growing popularity of AI-powered search.

During Alphabet’s October 28, 2026, third-quarter earnings call, Chief Business Officer Philipp Schindler acknowledged that some advertisers in the Asia-Pacific region had been affected by the European Union’s elimination of its customs-duty exemption for low-value imports.

The EU introduced a temporary €3 customs duty on qualifying imported goods valued at €150 or less, effective July 1, 2026. The duty is calculated by product classification within a shipment, rather than simply charging €3 per package.

The change affects international e-commerce retailers that previously benefited from duty-free access to European consumers, potentially reducing the economics of selling inexpensive products across borders.

But Google disclosed another important development.

Schindler confirmed that Google’s rapidly growing AI Mode search experience currently generates less advertising revenue than traditional search.

Although Google Search revenue increased 12% to $63.35 billion during the quarter, its growth rate slowed compared with the previous quarter. Currency movements were the largest factor behind that slowdown, according to Google, with retail advertising conditions and AI Mode monetization contributing additional pressure.

WHY IT MATTERS

Google built one of the world’s most profitable businesses around a relatively straightforward model: people search for information, advertisers pay to reach them, and Google earns revenue when users interact with advertisements.

Artificial intelligence is changing that relationship.

Instead of displaying primarily traditional search results and sponsored links, Google increasingly provides AI-generated answers that can respond to complex questions directly.

That creates a significant business challenge.

If people obtain the information they need from an AI-generated response, their interactions with conventional search advertisements may change.

Google must find ways to generate comparable advertising revenue from these new experiences without undermining their usefulness.

At the same time, international trade rules are changing the economics of advertisers that rely on inexpensive cross-border sales.

The combination demonstrates how technological disruption and government policy can affect the same business from entirely different directions.

WHO BENEFITS

European retailers: Import duties may improve their competitive position against overseas sellers offering extremely inexpensive merchandise.

Businesses adopting AI advertising tools: Google is expanding AI-powered campaign management, creative generation, and advertising formats that could help businesses reach customers through emerging search experiences.

Advertisers seeking new opportunities: Changes in advertising demand may create opportunities to test different audiences, campaigns, and marketing strategies.

Consumers: AI-powered search may make researching products, comparing alternatives, and finding relevant information more convenient.

However, these potential benefits will depend on how effectively Google integrates advertisements into AI-generated experiences.

WHO LOSES

Low-cost international retailers: Companies dependent on small shipments into Europe face additional import costs that can reduce margins or make products less competitive.

Advertisers relying heavily on traditional search: Businesses may need to adapt as Google introduces different advertising placements and purchasing experiences.

Smaller online merchants: Companies operating with limited marketing budgets could face difficulties adjusting to new advertising formats and changing customer behavior.

Google’s established advertising model: Lower monetization in AI Mode creates a financial challenge even when overall search activity increases.

Importantly, Google’s advertising business is still growing. Its third-quarter advertising revenue reached approximately $82 billion, compared with $74.2 billion a year earlier. The concern is not that advertising revenue has collapsed, but that its future economics are changing.

WHAT HAPPENS NEXT

Google is accelerating its efforts to introduce advertising into AI-powered search.

The company announced the expansion of advertisements in AI Mode into additional international markets, alongside new multi-turn advertising experiences in the United States.

Google is also incorporating Gemini models into its advertising infrastructure to improve targeting, campaign performance, and creative production.

According to the company, Gemini helped advertisers generate more than 1.5 billion campaign assets during the third quarter, over seven times the amount produced a year earlier.

Meanwhile, European import rules will continue influencing the costs faced by overseas retailers and potentially their advertising budgets.

The central question is whether Google’s expanding AI advertising formats can eventually produce revenue comparable to its traditional search business.

For companies advertising online, the practical response is to monitor campaign profitability, test AI-powered advertising opportunities, and avoid depending entirely on one search format.

The larger signal: Google is confronting an unusual challenge: the technology driving its future growth is also reshaping the advertising system that built its financial success. The next phase of AI search will be measured not only by how well it answers questions, but by whether those answers can support a profitable and sustainable business.