Google's New Shopping Ad Format in AI Mode: What Retailers Need to Know

Today, February 12, 2026, Google announced that shopping ads will now appear inside AI Mode. This is a major expansion of how product advertising works in Google Search—and it directly affects every retailer running Shopping or Performance Max campaigns.

The announcement came through Vidhya Srinivasan's third annual letter on the future of digital advertising and commerce, published on the Google Ads blog. Alongside the shopping ads news, Google revealed expansions to Direct Offers, UCP-powered checkout going live with major retailers, and a broader vision for AI-driven commerce that will reshape how shoppers discover and buy products.

In this article, we break down every detail retailers need to know: how the new format works, what it means for your existing campaigns, and exactly how to prepare.

What Google Just Announced

Vidhya Srinivasan, Google's VP/GM of Ads, published her third annual letter outlining the trajectory of digital advertising. The letter covers several major announcements, but the headline for retailers is clear: shopping ads are coming to AI Mode.

Here is Vidhya's full post on LinkedIn:

The Google Ads team also shared the announcement with additional context on the commercial implications:

The key announcements from the letter that affect retailers:

• Shopping ads in AI Mode: Product ads from your existing Shopping and Performance Max campaigns will now appear inside AI Mode conversations
• Direct Offers expansion: The pilot program for exclusive promotional deals in AI Mode is expanding to include loyalty rewards, bundles, and new incentive types
• UCP checkout going live: Shoppers will be able to complete purchases directly within AI Mode through Universal Commerce Protocol integrations
• More retailers joining UCP: Shopify merchants, Target, and Walmart are coming to UCP-powered checkout, joining Etsy and Wayfair which are already live

How Shopping Ads Work in AI Mode

Shopping ads in AI Mode represent a new surface for your existing campaigns. When a shopper asks AI Mode a product-related question, Google generates a conversational response with research and recommendations. Alongside that response, sponsored shopping ads now appear—showing product images, prices, ratings, and merchant names in a familiar card format.

Here is a video from Google demonstrating how the experience works:

The mechanics differ from traditional search ads in several important ways:

• No separate campaign needed: AI Mode draws from your existing Shopping and Performance Max campaigns. If your product feed is active and your campaigns are running, you are already eligible.
• Intent-based placement: Google's AI determines when to show shopping ads based on the conversation's commercial intent, not just keyword matching.
• Rich visual format: Product cards include images, prices, star ratings, and merchant names—similar to Shopping ads in traditional search but embedded within the AI conversation.
• Sponsored disclosure: Ads are clearly labeled as "Sponsored" to distinguish them from organic product mentions in the AI response.

This is fundamentally different from how ads have worked in Google Search for the past two decades. Instead of bidding on keywords and showing up in a search results page, your products now appear inside a conversation where the AI is actively helping a shopper make a purchase decision. The context is richer, the intent signals are stronger, and the path to purchase is shorter.

Direct Offers Get Even More Powerful

Alongside shopping ads, Google announced a significant expansion to the Direct Offers program. Direct Offers—the exclusive promotional deals that surface inside AI Mode when Google detects high purchase intent—are expanding beyond simple percentage discounts.

The new capabilities include:

• Loyalty rewards: Surface exclusive loyalty program benefits and member-only pricing inside AI Mode conversations
• Bundle deals: Present product bundles with special pricing when the AI identifies a shopper looking for multiple related items
• Free shipping offers: Promote shipping incentives as a standalone offer type
• Gift-with-purchase: Offer bonus items when a shopper buys a qualifying product through AI Mode

This broadening matters because it dramatically increases the number of retailers who can participate. Not every brand can offer a 20% discount, but nearly every retailer has loyalty programs, shipping policies, or bundling capabilities they can leverage.

Shopping ads and Direct Offers work together as complementary formats. Shopping ads provide broad product visibility within AI Mode conversations, while Direct Offers close the deal with targeted incentives when purchase intent peaks. Retailers who activate both will cover the full funnel inside AI Mode—from discovery through conversion.

UCP-Powered Checkout Is Going Live

Perhaps the most significant long-term announcement is that UCP-powered checkout is going live inside AI Mode. This means shoppers can complete purchases without ever leaving Google's AI conversation.

Etsy and Wayfair are already live with this capability. And today, Google confirmed that several major retailers and platforms are coming next:

• Shopify: Merchants on Shopify will be able to offer UCP checkout, giving hundreds of thousands of stores access to in-conversation purchasing
• Target: One of the largest US retailers joining UCP-powered checkout
• Walmart: The world's largest retailer is coming to UCP checkout inside AI Mode

This fundamentally changes the economics of shopping ads. When a shopper can research, compare, and buy entirely within AI Mode, the traditional click-to-your-website journey becomes optional. For UCP-enabled retailers, the conversion happens inside Google—which means faster checkout, fewer abandoned carts, and a completely different attribution model.

For retailers not yet on UCP, shopping ads in AI Mode will still drive clicks to your website as they do today. But the competitive pressure is clear: if your competitors offer in-conversation checkout and you do not, shoppers will naturally gravitate toward the faster, frictionless option. Understanding UCP feed readiness requirements is no longer a future planning exercise—it is a current priority.

What This Means for Retailers

The combined effect of shopping ads, expanded Direct Offers, and UCP checkout in AI Mode creates a new reality for retail advertising. Here is what changes:

AI Mode Becomes a Commerce Surface

AI Mode is no longer an experiment or a supplementary search experience. With ads and checkout built in, it is a fully monetized commerce platform. Retailers need to think of AI Mode as a distinct channel—one with its own user behavior patterns, conversion paths, and optimization strategies.

Attribution Gets More Complex

With UCP checkout, conversions can happen inside AI Mode without the shopper ever visiting your website. This breaks the standard click-based attribution model that most retailers rely on. You need server-side conversion tracking, promo code redemption tracking, and eventually AI Mode-specific conversion actions in Google Ads. If you have not already started implementing the AI agent revenue tracking framework, now is the time.

Feed Quality Becomes Even More Critical

Both shopping ads and Direct Offers in AI Mode rely entirely on your Merchant Center product feed. The AI uses your feed data to determine when and how to show your products. Incomplete feeds, missing attributes, stale pricing, or policy violations do not just hurt your Shopping ads anymore—they now exclude you from an entirely new commerce surface.

Competitive Dynamics Shift

Retailers who move fast have a window of opportunity. AI Mode is still early, and not all advertisers will immediately optimize for it. Early movers who get their feeds, promotions, and UCP readiness in order will capture share before the competition catches up. The same pattern happened when Shopping ads launched, when Performance Max expanded, and when each new surface opened up. First movers win disproportionately.

The Protocol War Matters More

Google's UCP and the competing protocols like Shopify's ACP are battling to become the standard infrastructure for AI-powered commerce. Today's announcement puts Google firmly in the lead by integrating UCP directly into the world's largest search engine. Understanding how UCP compares to ACP helps you make informed decisions about which ecosystem to invest in—or whether to support both.

How to Prepare Your Shopping Campaigns

Here are the concrete steps you should take this week to prepare for shopping ads in AI Mode. Every step also improves your current Shopping and Performance Max performance, so nothing here is wasted effort.

1. Audit Your Product Feed Immediately

Your Merchant Center feed is the single most important factor. Check for completeness: every product should have a title, description, price, image, availability, GTIN, and brand. Then go deeper with rich attributes—color, size, material, product type, and shipping details. The AI uses all of these signals to match your products to shopper queries. Run a UCP readiness check on your feed to identify gaps.

2. Upload and Expand Your Promotions

Direct Offers now support loyalty rewards, bundles, free shipping, and gift-with-purchase. Go to your Merchant Center promotions tab and upload every active offer you have. Do not limit yourself to percentage discounts. The more promotion types you have active, the more surfaces Google can use to promote your products.

3. Implement Server-Side Conversion Tracking

With UCP checkout enabling in-conversation purchases, you need server-side tracking to capture conversions that happen inside AI Mode. Implement the Google Ads Conversion API or Enhanced Conversions. Configure promo code redemption tracking. These are not optional nice-to-haves anymore—they are required infrastructure for accurate ROAS measurement in the AI Mode era.

4. Review Your UCP Readiness

If you are on Shopify, check with your platform for UCP integration timelines. If you are a direct retailer, review the UCP documentation and assess what it takes to support headless checkout through Google. Retailers who enable UCP checkout will have a significant advantage over those who still require website visits for conversion.

5. Monitor Your Campaign Reporting

Watch for new AI Mode placement data in your Google Ads reporting. Google will likely introduce new reporting columns for AI Mode impressions, clicks, and conversions. Set up custom alerts for these new metrics so you catch any anomalies early. Track how AI Mode performance compares to traditional Shopping placements and adjust budgets accordingly.

6. Understand Your Per-Product Economics

With Direct Offers expanding to new incentive types and UCP enabling frictionless checkout, you need clear visibility into per-product profitability. Not every SKU can sustain a promotional offer. Not every product has enough margin to make AI Mode-driven sales profitable after accounting for the promotion discount.

Frequently Asked Questions

What Happens Next

Today's announcement marks the moment AI Mode went from a search experiment to a commerce platform. Shopping ads, expanded Direct Offers, and UCP-powered checkout create a complete buying experience inside Google's AI—from product discovery through payment.

For retailers, the immediate action items are clear: audit your product feed, expand your promotions beyond simple discounts, implement server-side conversion tracking, and assess your UCP readiness. Every step you take today prepares you for both the current rollout and the inevitable expansion that follows.

The retailers who treated Performance Max as optional when it launched spent the next two years catching up. The same pattern is forming with AI Mode. The shopping ads surface is here. UCP checkout is going live. The question is not whether to prepare—it is how fast you can move.

We will continue updating this article and the full agentic commerce guide series as Google releases more details on targeting, reporting, and pricing for AI Mode shopping ads. Bookmark this page and check back for updates.