Alphabet’s latest Google Search growth story is worth looking into amid the company’s AI expansion. Search and other advertising revenue increased 17% year over year to $63.3 billion, accounting for more than half of Alphabet’s $119.8 billion in quarterly revenue and remained its largest individual revenue source, despite Google Cloud’s 82% expansion to $24.8 billion.
However, where that segment growth came from is another story. In a widely circulated X post, Max Anderson, who said he has personally spent more than $500,000 per month on Google Ads, called the Search growth “artificial and extremely unhealthy for Google’s business long term.”
Anderson attributed the increase to higher prices, broader keyword matching, unwanted clicks, and campaigns spending as much as twice their stated daily budgets. Other advertisers responding to the post described similar experiences, although none provided sufficient account-level data to establish that the practices drove Alphabet’s company-wide results.
In essence, Anderson asserts that the growth came mostly from more paid clicks, not a dramatic increase in click prices, complicating claims that Google manufactured its second-quarter performance by squeezing advertisers.
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This matters because Alphabet is relying on its advertising engine to finance an increasingly cash-intensive AI expansion. Capital expenditures reached $44.9 billion during the quarter, exceeding the company’s $39.1 billion in operating cash flow and pushing free cash flow to negative $5.9 billion. Management raised its full-year capital expenditure forecast to between $195 billion and $205 billion, up from $180 billion to $190 billion.
It is worth noting that Alphabet’s regulatory filing does not support the central claim that Search growth was primarily manufactured through higher click prices. Paid clicks on Google Search and other properties increased 13% from the previous year, while average cost per click rose 3%. Alphabet attributed the broader revenue increase to higher search-query activity, greater advertiser spending, and changes to ad formats and delivery.
The company does not publish absolute Search volumes, however. Its statement that AI features are increasing queries remains a company claim that cannot be independently measured.
CEO Sundar Pichai said AI Mode and AI Overviews were increasing Search usage, while Chief Business Officer Philipp Schindler said Gemini was helping Google identify ads for longer searches that had previously been difficult to monetize. Google also said AI Max and Performance Max users generated an average of 15% more conversions or conversion value at comparable returns on advertising spending.
Anderson alleges that Google replaced its second-price auction system with a first-price model. Under that, Google could charge advertisers closer to their maximum bids, increasing costs even when competitive pressure in the auction is limited.
Google’s published policy says advertisers generally pay the minimum required to clear an Ad Rank threshold and defeat the next-ranked competitor. When no competing advertiser clears the threshold, the winner pays a reserve price. That reserve can still be high enough for the final charge to approach the advertiser’s maximum bid.
That means an experiment in which a higher bid produces a higher charge does not, by itself, prove that Google adopted a first-price auction. Changes in reserve prices, quality calculations, eligibility thresholds, or Ad Rank could produce a similar result.
However, the underlying transparency concern is harder to dismiss. A 2024 federal antitrust ruling described Google’s Search advertising system as a “classic second-price auction, with modifications.” The court found that Google used mechanisms including reserve adjustments and ranking changes to raise prices, increase revenue in auctions with limited competition, and generate billions of dollars in additional annual revenue. Some internal records acknowledged that the changes imposed costs on advertisers.
READ: “Google Is A Monopolist”: Judge Rules Search Giant Cheated the System
The remedies court later ordered Google to disclose material auction changes publicly. It declined to require Google to restore a literal exact-match keyword option, finding that the government had not demonstrated that such a requirement would promote competition.
Google is also facing preliminary scrutiny in Europe over whether it artificially increased Search advertising auction clearing prices. No formal investigation had been announced as of the European Commission’s February request for advertiser feedback. Google said prices were determined through real-time auctions considering competition and ad quality.
Exact match is not literally exact
But, Google’s own documentation validates one part of the complaint. Every keyword type, including exact match, can trigger close variants, and Google provides no setting to disable them. Close variants can include reordered words, added or removed function words, spelling variations, and searches Google determines have the same meaning or intent.
Advertisers can review search-term reports and add negative keywords, but that requires campaigns to identify unwanted traffic after ads have potentially already generated charges. The policy supports the criticism that “exact match” no longer means a character-for-character match.
On the budget complaint, Google explicitly describes campaign budgets as average daily budgets. A campaign set at $1,000 may spend as much as $2,000 on a high-traffic day, while the standard monthly billing limit remains $30,400 if the budget is unchanged throughout the month. Google says credits are applied when delivery exceeds the monthly limit.
Alphabet’s quarter therefore does not show that Search growth was fabricated. It shows a business producing higher paid-click volumes while incrementally raising click prices and monetizing more complex queries.
The strategic risk is that Google must sustain that expansion while asking advertisers to accept increasingly automated targeting, less literal keyword controls, and an auction system whose pricing adjustments have already drawn judicial and regulatory scrutiny.
