What the AI Takeover Of Search Means for Digital Commerce Companies

This year has seen what is arguably the most consequential development in online search since the invention of the search engine itself. Namely, Google’s rollout of AI Mode, its new function which answers search queries with AI generated articles rather than the usual list of relevant links, thereby removing (or at least very much reducing) the need to click through to any other websites. 

While it’s currently optional, Google isn’t pretending this is anything other than a major evolutionary milestone, with the tech giant’s head of search bluntly declaring it “the future of Google search.” The implications for publishers and content creators which rely on search engine results to bring in consumers are seismic.

Of course, concerns around the impact of LLMs on search have been swirling for some time, with the increasing tendency of internet users to get information directly through the likes of ChatGPT and Claude, or from Google’s instant AI Overviews – the precursor to AI Mode – having a significant effect on website clickthroughs.

One recent analysis of almost 69,000 Google searches has shown that users who receive an AI Overview with their search results click through to websites half as often as users who only get traditional results. Moreover, only 1% of searches featuring AI Overviews culminate in the user clicking on any links embedded within the Overviews. Businesses have also been sharing their anecdotal experiences about plummeting visitor numbers in the post-AI universe. For example, the popular news site MailOnline has reported that AI-generated summaries have slashed clickthroughs by more than 56% for its desktop site and 48% on mobile.

It's clear that the decades-long era of what we now call traditional search, in which businesses have deployed painstaking SEO strategies to stay on top of search engine algorithms, is giving way to an entirely new way of doing things. This shift has been exemplified by the introduction of Google’s AI Mode, which is notable not because of any great technological leap forward from AI Overviews, but because its existence formalises and marks out a new paradigm from the search engine with almost 90% of the market share.

Many take issue with the ethics of this new iteration of the web, with the chief executive of the UK’s News Media Association recently accusing Google of keeping users “within its own walled garden, taking and monetising valuable content created by the hard work of others”. But the fact is that AI search is here to stay, with consequences for profit margins and M&A valuations within the digital commerce space.

Businesses depending on ad revenues, affiliate links, subscription-based content and other vestiges of the pre-AI summary/traditional search era are feeling the pressure. A prime example is news website Business Insider, which earlier this year announced it was laying off 21% of its staff so that it can “endure extreme traffic drops outside of our control”. Meanwhile, homework help website Chegg, which has been forced to carry out multiple rounds of redundancies due to generative AI’s impact on the edtech space, has filed a suit against Google, claiming AI Overviews have hurt its revenues.

Some businesses are embracing and monetising the new reality. For example, the New York Times is licensing content to train Amazon AI models, meaning that services such as Alexa can mine NYT material for summaries. Similarly, Reddit has forged a lucrative deal with Google to allow the search giant to train its model on its posts. (It’s also grabbing the AI bull by the horns with the launch of its own AI-powered search tool, Reddit Answers, which according to the company’s Q2 report has grown to six million weekly queries.)

While such information-sharing partnerships may be feasible for big enterprises with sprawling treasure troves of content and data to trade, the vast majority of search-reliant businesses will need to adapt their marketing strategies or face downward revision of multiples and increased investor scrutiny. Perhaps the most obvious path ahead is to shift focus from SEO to GEO, or generative engine optimisation.  

Indeed, startups which specialise in boosting AI-driven traffic for their clients are attracting considerable VC interest. See Athena, a Y Combinator-backed GEO company, which recently raised USD 2.2m in seed funding to scale its tools for SaaS and e-commerce brands. Or Scrunch AI, which recently closed a USD 15m Series A round, a windfall reflecting the fact that over 500 brands already use its platform to enhance AI visibility. 

It should also be noted that declining ad clicks and sluggish traffic will also impact search engine revenue streams. Moreover, the inference costs associated with the switch to AI are enormous. Commenting on the current state of play, Jonathan Simnett, managing director at Hampleton Partners, said: “Search giants are being forced to reconfigure business strategies. This means accepting higher infrastructure costs, including data centre buildout and increasing energy costs, and redesigning monetisation such as through AI-powered ads, subscriptions, or agent integration.”

These are very fast moving times, presenting a raft of opportunities for AI-focused digital commerce startups. If you’re a founder or senior decision maker looking to explore exit strategies for your business, get in touch with Jonathan Simnett directly to talk about your journey so far, and where you’d like to head next. 

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