How Search Engine Marketing Works in 2026

Search engine marketing (SEM) in 2026 still refers to paid advertising on search engines, but the mechanics behind it look different from a few years ago. Platforms now rely heavily on machine learning to determine auction eligibility, bids, placements, and creative delivery. Those decisions are no longer limited to traditional search results. Ads can also appear in environments such as AI Overviews, AI Mode, Google Lens, and Circle to Search.

As a result, advertisers have less direct control over keyword targeting and bid management than they once did. Instead, campaign performance increasingly depends on automated bidding systems, first-party customer data, conversion signals, and AI-assisted ad creation.

Industry spending reflects these changes. According to the 30th IAB/PwC Internet Advertising Revenue Report, US digital advertising revenue reached $294.6 billion in 2025, a 13.9% increase from the previous year. Search remained the largest advertising channel, generating $114.2 billion in revenue. However, search growth slowed to 11% in 2025, compared with 15.9% in 2024. While search continues to attract significant investment, the slower growth rate suggests that AI-driven experiences are beginning to influence how users discover information and how advertisers allocate budgets.

At M+C Saatchi Performance, we manage paid search campaigns for digitally focused brands across global markets. This guide examines the platform changes that matter most in practice and outlines the considerations that marketing leaders should address in their upcoming planning cycles.

Key Takeaways

• Google determines Ad Rank in real time for every search. The auction considers bid amount, ad quality at auction time, Ad Rank thresholds, competition levels, user context, and the expected impact of ad assets.
  
• Google recommends using broad match keywords together with Smart Bidding. According to Google’s guidance, Target CPA campaigns that switch from phrase match to broad match can generate about 25% more conversions.
  
• Search and Shopping ads can appear within AI-generated search experiences. Ads are already integrated into AI Overviews, and Google is testing additional Gemini-powered ad formats in AI Mode.
  
• Visual search has become a shopping channel. Shopping ads are shown above and alongside Google Lens results, which receive nearly 20 billion searches each month, with around one in five related to shopping.
  
• Automated bidding strategies are increasingly focused on business value rather than traffic volume. Google reports that campaigns using Smart Bidding Exploration attract an average of 27% more unique converting users.
  
• First-party data continues to play an important role in campaign performance. Advertisers that connect offline and app data through Data Manager report 26% higher incremental ROAS, while enhanced conversions increase Search conversion reporting by an average of 11%.

How Does the Search Engine Marketing Auction Actually Work?

Getting search ads in front of the right audience isn’t as simple as bidding the most money. That stopped being true years ago.

Every time someone performs a search, Google runs a real-time auction to determine which ads appear and in what order. While the system is often described as a variation of a generalized second-price auction, advertisers don’t automatically pay their maximum bid. Instead, they usually pay only the amount required to maintain their position against the next eligible competitor.

As Google’s own documentation explains, a bid represents the maximum amount you’re willing to pay for a click. The actual cost is often lower.

The outcome of the auction depends on more than bidding. Google uses a metric called Ad Rank to decide whether an ad is eligible to appear and where it will be placed on the search results page. Ad Rank is recalculated for every search using several signals:

1. The maximum bid set by the advertiser
2. The quality of the ad and landing page
3. Minimum Ad Rank thresholds required to enter the auction
4. The level of competition in that specific auction
5. Context signals such as device type, location, time, and search intent
6. The expected impact of ad assets, including sitelinks and other extensions

Google states that Quality Score is a diagnostic metric, not a factor used during the auction itself. Its purpose is to help advertisers understand how keywords perform in relation to expected click-through rate, ad relevance, and landing page experience.

What matters during the auction is Google’s real-time evaluation of those same components. The system measures expected CTR, ad relevance, and landing page experience at the moment a search takes place, not through the historical Quality Score displayed in the interface.

When Should You Adjust Bids?

Low impression share does not automatically mean your bids are too low.

A campaign can have strong historical Quality Scores and still struggle in auctions if search intent, audience targeting, ad messaging, and landing page experience fail to match what users are looking for.

Before increasing bids, check whether:

• Audience targeting aligns with the searches you’re trying to win
• Ad copy closely reflects user intent
• Landing pages match the promise made in the ad
• Keyword diagnostics show auction-time relevance signals as “Above average”

If those areas are weak, raising bids may simply increase costs without improving results. Fixing relevance and intent alignment usually has a greater impact on Ad Rank than increasing bids alone.

Why Keyword Targeting Has Moved From Syntax to Intent

The old PPC model relied on tightly controlled keyword lists, exact-match targeting, and extensive negative-keyword management. Google’s AI-driven approach has changed that.

Today, Google recommends pairing broad match keywords with Smart Bidding. According to Google’s documentation, broad match works best with bidding strategies such as Maximize Conversions, Maximize Conversion Value, Target CPA, and Target ROAS because Smart Bidding evaluates intent and conversion likelihood in real time during every auction. Google’s internal data shows advertisers moving from phrase match to broad match can achieve around 25% more conversions in Target CPA campaigns and 12% more conversion value in Target ROAS campaigns while maintaining efficiency targets.

User behaviour is changing too. WPP Media reports that searches containing three or more words increased by 18% year over year, reflecting growing demand for conversational, intent-focused searches rather than simple keyword lookups.

The DSA-to-AI Max Roadmap

Date	Update
January 2026	Direct Offers pilot launches with brands including Chewy, Gap, and L’Oréal.
April 2026	AI Max for Search exits beta, delivering an average 7% increase in conversions or conversion value at similar CPA or ROAS levels.
May 2026	Google unveils Conversational Discovery ads, Highlighted Answers, AI-powered Shopping ads, and Business Agent for Leads.
September 2026	Campaigns using Automatically Created Assets and campaign-level broad match begin upgrading to AI Max.
January 2027	Google removes the ability to create new Dynamic Search Ads (DSA) campaigns.
February 2027	Automatic migration of remaining DSA campaigns to AI Max begins, marking the transition away from DSA as a standalone campaign type.

Google has confirmed that campaigns already using DSA, automatically created assets, or campaign-level broad match will be upgraded to AI Max, with existing URL controls carried over. For advertisers, AI Max becomes the primary framework for Search rather than an optional feature.

What Bidding Strategy Should You Use in 2026?

As automation takes on more decision-making, value-based bidding (VBB) has become increasingly important. Rather than optimizing for clicks or conversion volume alone, VBB helps platforms prioritize users who are more likely to generate revenue, profit, or long-term customer value. This depends on accurate conversion values, CRM feedback, and offline conversion data.

Strategy	Primary goal	Best for
Maximize Clicks	Traffic growth	Awareness and audience building
Target CPA	Cost efficiency	Lead generation with similar conversion values
Target ROAS	Revenue growth	Ecommerce and high-volume online sales
Value-Based Bidding	Business value and profitability	Mature accounts with strong first-party data and offline tracking

Platforms also continue to expand how campaigns learn from business outcomes. With offline conversion imports, lead quality signals, and journey-aware bidding, campaigns can optimize for revenue and lead quality rather than conversion volume alone.

Four Changes Marketers Should Plan For

1. Smart Bidding Exploration: It gives advertisers more flexibility around ROAS targets and helps uncover additional converting searches. Google reports a 27% increase in unique converting users on average.
2. Journey aware bidding: Allows campaigns to consider actions across the customer journey, including calls, forms, and other lead-stage interactions.
3. Campaign total budgets and demand-led pacing: Let advertisers set budgets across a defined period rather than managing spend daily. Google reports this reduces manual budget adjustments by about 66%.
4. AI Max: It now brings broad match, dynamic targeting, and asset automation into a single Search framework, delivering an average 7% increase in conversions or conversion value when fully enabled.

The practical takeaway is straightforward: campaign performance depends less on keyword micromanagement and more on the quality of the data, conversion values, and business signals you feed into the system.

Where Do Search Ads Actually Appear Now?

Search advertising no longer lives exclusively on the traditional search results page. As consumer behaviour spreads across AI assistants, visual search tools, and conversational interfaces, ad placements have expanded to match.

Ads in AI Overviews and AI Mode

Google rolled out ads in AI Overviews for US mobile users in October 2024. Search and Shopping ads can now appear above, below, or within AI-generated responses, with all placements clearly marked as sponsored.

According to Google’s own testing, users who interact with AI Overviews report higher satisfaction with their search experience and find these ad placements useful when researching products and services.

The shift became more apparent at Google Marketing Live 2026, where Google introduced several Gemini-powered ad experiences designed for AI Mode:

• Conversational Discovery Ads: Custom ad experiences generated dynamically for individual queries, alongside AI-generated explanations.
• Highlighted Answers: Sponsored recommendations integrated into AI-generated suggestion lists, such as app recommendations or product comparisons.
• AI-Powered Shopping Ads: Product recommendations enhanced with AI-generated explanations tailored to the searcher’s intent.
• Business Agent for Leads: Interactive AI agents embedded within ads, allowing users to ask questions and receive responses based on a brand’s website content.

Shopping Ads in Visual Search

Visual search has become another major advertising surface. Shopping ads now appear alongside Google Lens results and visual search experiences, supported by the Shopping Graph’s 45 billion product listings.

On desktop, Google Lens can surface product ads directly within visual results. On Android, Circle to Search enables users to search products from any image or screen content, with eligible ads appearing through existing Search, Shopping, and Performance Max campaigns. No separate campaign setup is required.

What the Click Data Shows

A study by Seer Interactive covering 53 brands, 5.47 million queries, and 2.43 billion organic impressions between January 2025 and February 2026 found that:

• Paid search CTR increased from 14.6% to 16.2% when an AI Overview appeared.
• Paid search CTR declined from 26% to 21.8% on searches without AI Overviews.

Analysis published by Search Engine Land highlighted the impact on organic performance:

• Organic CTR averaged around 3.3% when no AI Overview appeared.
• Organic CTR fell to roughly 2.1% when an AI Overview cited the brand.
• Organic CTR dropped further to around 0.9% when the AI Overview did not reference the brand.

While organic visibility faces growing pressure, paid placements appear to be providing more consistent traffic opportunities within AI-driven search experiences.

What This Means for Advertisers

Search ads are now appearing across a wider range of consumer touchpoints:

• Traditional search results
• AI Overviews
• AI Mode conversations
• AI-generated recommendation lists
• Visual search experiences
• Google Lens results
• Circle to Search interactions
• Shopping-focused AI experiences

Success in these environments depends heavily on data quality. Advertisers need:

• Accurate product feeds
• High-quality images
• Detailed product information
• Strong creative assets
• Well-structured campaign data

Brands that focus only on traditional search results risk missing a growing share of high-intent users who are discovering products through AI-powered and visual search experiences.

How Do You Measure SEM and Maximise Marketing ROI?

Measurement sits at the centre of effective search marketing. As bidding and optimisation become increasingly automated, competitive advantage comes from data quality.

Relying only on platform-reported conversions can be misleading. Ad platforms often double-count touchpoints and rarely show whether activity generated new demand or simply captured conversions that would have happened anyway.

Google’s 2026 measurement roadmap highlights three priorities: stronger data foundations, broader measurement signals, and causal measurement. We apply the same principles through:

1. Server-side tracking and enhanced conversions: Server-side measurement improves data accuracy by reducing browser-related tracking loss. Google reports that advertisers connecting offline and app data see an average 26% increase in incremental ROAS, while enhanced conversions deliver an average 11% uplift in Search conversions.
   
2. Marketing mix modelling (MMM): Google’s Meridian framework helps brands quantify the contribution of each marketing channel and includes Branded Google Query Volume to measure the impact of upper-funnel activity.
   
3. Incrementality testing: Geo-based experiments using Meridian GeoX help determine whether paid search is creating additional sales or simply capturing existing demand.

Better measurement produces better decisions. A disciplined testing programme identifies the campaigns that genuinely drive growth, highlights where spend is being over-credited, and helps direct budget toward the highest-return opportunities.

Why App Expertise Still Matters in Search Advertising

Search advertising presents a different set of challenges for brands operating in the app economy. As one of the world’s earliest mobile marketing agencies, our experience in app marketing gives us a strong understanding of Google App campaigns and mobile-first search behaviour.

Driving an app install or in-app purchase requires a different approach from generating a website lead. Mobile searches are often driven by immediate needs and local intent, which means the experience after the click matters just as much as the ad itself. Research has consistently shown that mobile users are more likely to act, but they also expect a seamless journey.

A key part of that journey is deep linking. When someone already has your app installed and clicks a search ad for a specific product, they should land directly on the relevant page within the app. Sending them to a browser instead creates unnecessary friction and can significantly reduce conversions.

Our work in app marketing has also given us firsthand experience with how Google App campaigns operate. These campaigns rely heavily on machine learning, using combinations of text, image, and video assets across Search, Google Play, YouTube, Discover, and the Display Network. Strong performance depends on ongoing creative testing, fresh assets, and enough variation to keep campaigns effective over time.

How should SEM align with the broader digital ecosystem

SEM works best when it is treated as part of a wider media strategy, not as a standalone channel. Most search demand begins elsewhere. A consumer might first encounter a programmatic display ad, an influencer partnership, or a connected TV campaign. Their next step is often to search for the brand, product, or category, whether through Google Search, Gemini, Google Lens, or another search interface.

This is why paid search performance cannot be assessed in isolation. Brand campaigns, upper-funnel media, and creator activity all influence the volume and quality of searches that follow. Stronger brand awareness typically leads to stronger search demand.

Recent market data reinforces this point. According to IAB SVP of Research and Insights Jack Koch, changing consumer behaviour is pushing advertisers towards closer integration of data, media, and commerce. The value of search increasingly depends on how well it works alongside other channels.

The trend is also visible in traffic data. Semrush’s April 2026 analysis of billions of web visits found that paid search traffic increased by 75.84% in 2025. Over the same period, organic search grew by just 2.38%. Organic traffic declined in 13 of the 17 industries studied, including healthcare (-30.09%), banking (-27.09%), education (-26.88%), and wellness (-25.64%).

The same research points to another shift worth considering. Visitors arriving from AI-powered search platforms appear to be more likely to convert than traditional organic visitors. Semrush reported that the average visitor from a non-Google AI source delivered conversion rates roughly 4.4 times higher than those from conventional organic search. For marketers thinking about answer engine optimisation (AEO), that changes the value equation considerably.

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