Google Is Eating Its Own PPC Business. Here’s Where the Budget Should Go Instead.
For twenty years the deal was simple. Google gave you the organic result for free and sold you the paid one next to it. Two products, one page, no conflict of interest.
That deal is breaking down. AI Overviews now sit above both. They answer the query before the user reaches either the organic listing or the ad. Google has built a product that competes with its own advertisers, and the data on how badly is now solid enough to act on.
The numbers advertisers need to see
Paid click-through rate on queries where an AI Overview appears has collapsed. Independent tracking across thousands of queries found paid CTR falling from 19.70% to 6.34% once an AI Overview took the top of the page, a drop of more than two thirds. Queries without an AI Overview saw nowhere near that decline.
At the same time, cost per click has gone the other way. Average Google Ads search CPC reached $2.96 in Q1 2026, up 12% year on year, the steepest rise since 2021. Three forces are driving it: AI Overviews compressing organic click volume by 8 to 12%, which pushes displaced traffic into the paid auction; Performance Max expanding into more inventory and intensifying competition for it; and Smart Bidding escalation, where every advertiser’s algorithm chases the same efficient frontier at once.
Put the two trends together and the picture is unambiguous. Advertisers are paying more for a placement that converts less, because the AI layer above it is absorbing the click before the ad is ever seen.
This is cannibalisation, not disruption
Disruption implies an outside force changing the market. This is Google restructuring its own page to prioritise a product it fully controls, at the expense of a revenue line it also fully controls. The AI Overview is not a neutral feature sitting between organic and paid. It is a third product competing with both, built by the same company that sells the other two.
Performance Max makes the squeeze worse because it removes advertiser control at the exact moment control matters most. There are no keyword lists, no placement level budgets, no manual bid adjustments. You feed it assets and a goal, and it chases inventory automatically across Search, Display, YouTube, Gmail, Discover, Maps and now Waze. Every new surface Google adds becomes something PMax bids into without asking you first. That is inventory expansion working exactly as designed. It is also auction pressure you did not choose and cannot switch off.
Why the fix isn’t “spend more on PPC”
The instinctive response to falling CTR is to bid harder to hold position. That response is now actively unprofitable. You are bidding into a shrinking pool of clicks that survive the AI Overview, at a price inflated by every other advertiser doing the same thing. It is spend chasing a contracting opportunity, not a stable one.
The more useful question is where the AI Overview’s traffic actually goes. It does not vanish. It goes to whichever source the AI Overview or the AI App result cites. Brands cited inside an AI Overview earn measurably more of the residual organic clicks than brands mentioned nearby but not cited. The click that used to be won with a bid is now won, or lost, before the auction even happens, based on whether your content was structured well enough to be pulled into the answer.
This is the mechanism the OPTIMUM framework has been built around since 2024. Tier 1 is the technical and structural foundation that makes a page machine-readable and citation-eligible in the first place, structured data, entity clarity, crawlable architecture. Tier 2 is the citation-cluster layer built on top of it, content and product pages architected around the fan-out queries an AI system actually generates when it decomposes a user’s question. A business with weak Tier 1 is invisible to the citation engine regardless of PPC spend. A business with strong Tier 1 and no Tier 2 is citable but thin, present without authority.
Where the budget should actually go
The case for reallocating a portion of PPC spend toward AI-optimised website and product page architecture is not a hedge. It is arithmetic.
PPC now buys a shrinking, increasingly expensive slice of clicks that survive an AI Overview. Citation-cluster investment buys presence inside the AI Overview and the AI App result itself, the layer that decides who gets seen before any auction takes place. One is renting a diminishing asset. The other is building a durable one, since citation eligibility, once structurally embedded, keeps compounding across every future query in that cluster without an incremental cost per click.
The businesses already ahead on this split tend to be the larger operators with the resource to run both tracks simultaneously, approaching what the framework calls Epoch 2, where every competitor has completed Tier 1 and competitive advantage shifts entirely to Tier 2 execution. Smaller operators are still trying to out-bid a machine that has already decided not to show their ad to most of the people searching. That is not a strategy. It is a losing bet against an opponent who has already changed the rules.
The practical allocation
This is not an argument for abandoning PPC. High-intent, bottom-funnel commercial queries where no AI Overview appears remain a legitimate paid channel, and will for some time. The argument is for stopping the reflex of defending top-of-funnel and informational query positions with bid increases, when those are precisely the queries AI Overviews have already absorbed and are not coming back.
A sensible reallocation moves budget away from defending CTR on AI-Overview-saturated queries and into citation-cluster sitemap architecture, structured data completion, and entity clarity work, the technical groundwork that determines whether a business is even eligible to be cited when the AI Overview forms its answer. Spend on being the answer, not on renting the space next to it.
Google built the auction. It also built the thing that is quietly emptying it. The only rational response is to stop paying to be seen in a place fewer people are looking, and start building to be cited in the place they are.
Steve Coulter is the founder of State of the Art Digital, an independent AI search visibility consultancy built around the OPTIMUM framework for AI citation readiness. He has been working in search since 1999, with a sales and marketing background spanning senior roles at Renault UK and automotive industry management before moving into independent consultancy in late 2024. His work focuses on automotive retail and estate agency, with a growing client base across financial services, publishing and other UK SME sectors. ‘AI Search Today and Tomorrow’ is a three part thesis which anchors published research and AI Search SaaS products.
stevecoulter.co.uk | steve@stevecoulter.co.uk | +44 (0)7407 038877
