Kobeissi Letter Amplifies Reddit CEO's Remark That Google's AI Mode Does Not Drive Traffic
Reddit's earnings call has exposed the new reality for thousands of companies. "AI mode does not drive traffic. Not for us and not to anybody as far as I know. It used to be a traffic driver. Now it's not." - Reddit CEO. The reality is that AI is fundamentally changing the way that humans access the internet. Just 24 hours prior to this statement, Google's stock erased -$480 billion on the same issue: AI is disrupting the traditional search model. For decades, the internet operated on a simple model. Search engines directed users to websites, and those websites monetized the traffic. AI is destroying this business model, and it's happening at an accelerating pace. The traditional model of internet traffic is rapidly becoming outdated. The internet has entered a new era.
Context
A major website saying Google's AI search sends it no visitors puts numbers on a shift that threatens the ad model much of the web runs on.
The lead post comes from The Kobeissi Letter, a markets commentary account, quoting Reddit's third quarter earnings call held on Thursday. AI Mode and AI Overviews are Google search features that answer questions with AI summaries above or instead of regular links.
Deep dive
The Kobeissi Letter posted on Friday that Reddit's earnings call exposed a new reality for many companies, quoting Reddit's CEO as saying AI Mode does not drive traffic, not for Reddit and not to anybody as far as he knows. The post is a secondhand quote, but the remark is confirmed by coverage of the call.
According to The Verge and AdExchanger, CEO Steve Huffman said on Thursday's third quarter call that Google's AI Mode does not drive traffic and that this is a fundamental shift in how Google works. Reddit said search referrals in October dropped by more than one million per week on average. Huffman also said Google is crawling Reddit as hard as ever and that Reddit remains a top search term, so demand for its content has not changed.
Reuters reported that Reddit warned daily active unique visitors could fall by a low double digit percentage in the fourth quarter from about 130 million if the trend continues, and that its shares fell 18 percent after hours. Reddit plans to test a logged in only experience in some markets outside the United States.
The Kobeissi post also claims Google's stock lost 480 billion dollars in value the day before over the same issue. We did not independently verify that figure.
What to expect next
Watch Reddit's fourth quarter traffic numbers and whether the logged in only test spreads to the United States. Other publishers and platforms may report similar referral declines in their own earnings. Pressure could grow on Google to send more clicks from AI Mode, or for sites to seek licensing deals instead of relying on search traffic. Investors will also track Google's own comments on how AI Mode affects clicks to websites.