AI Is Revitalizing the Ad Market and Holding Up Big Tech in the Process

Advertising is among the top revenue earners for tech giants and has suffered a decline over the past few quarters. Big tech companies have, however, been able to survive the slowdown partly courtesy of artificial intelligence (AI).

AI Rescues the Ad Market

Tech companies filed their earnings for the 2nd quarter and from the look of things, the companies’ advertising businesses are recovering. Most of the companies credited AI in one way or another as most of their AI-powered products and services saw increased adoption.

During its earnings call on Tuesday, Meta reported its highest advertising revenue since the last quarter of 2021. The company, which derives a majority of its income from the advertisements it runs on its social media platforms, made $31.5 billion from advertising on its family of apps. This represents a 12% increase year over year in social media advertising revenue.

The ad revenue from apps is over 98% of all the revenue the tech giant made from its social media platforms in the quarter. The value is also a significant portion of the company’s total revenue which was announced to be $32 billion in the quarter.

“Within ad revenue, the online commerce vertical was the largest contributor to year-over-year growth, followed by entertainment & media and CPG. Online commerce benefited from strong spending among advertisers in China reaching customers in other markets,” Susan Li, Meta’s CFO, explained in the call.

Meta also discussed its revenue accelerators among Advantage+, which is an AI-powered advertising product, was included. The company reported a strong adoption of Advantage+ campaigns among advertisers shedding light on how the company’s AI projects are doing. Meta stated that:

AI is driving results across our monetization tools through our automated ads products, which we call Meta Advantage. Almost all our advertisers are using at least one of our AI-driven products.

While the tool is fairly new, Li stated that the company was working on onboarding more advertisers to utilize its AI capabilities. Meta said that its use of AI in advertising, its core business, was looking promising and it looks forward to investing further into the technology.

“So the feedback and results that we’ve seen from advertisers are good, and we think it’s a really promising area that we’re continuing to invest in. But it’s one of many ways that we’re using AI to continue to sort of help make our ads systems and recommendations and ranking engines, more performant to deliver better measurement and results to advertisers,” the CFO remarked.

Meta has also rolled out a new tool named Meta Lattice. The tool is a new model architecture that learns to predict an ad’s performance across a variety of datasets and optimization goals. Using Lattice, the company is looking to grow its ad revenue to new highs by helping advertisers better optimize their ads for maximum effect.

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On the other hand, Google also reported massive growth in revenue in its advertising businesses. From Google Search, the tech giant reaped $42.6 billion in revenue in the second quarter of this year. This is a 5% increase from the $40.7 billion that the company’s search advertising brought a year ago.

YouTube advertising revenue also saw a 4% year-on-year increase in ad revenue from $7.3 billion to $7.3 billion. Google attributed this increase to “growth in brand, followed by direct response, reflecting further stabilization in advertiser spend.”

While the revenue from Google’s Network business declined, Alphabet’s advertising unit saw a significant increase. The advertising business reported a revenue of $58.1 billion from $56.3 billion the previous year.

Like Meta, Google attributed its advertising success to AI. “It’s worth reiterating that while generative AI is now supercharging new and existing ads products with tons of potential ahead, AI has been at the core of our ads business for years. In fact, today, nearly 80% of advertisers already use at least one AI-powered search ads product,” the company’s Chief Business Officer, Philipp Schindler, said.

Google has employed AI to help advertisers set up their advertisements faster through conversations with AI on Google Ads. Advertisers also get assistance with creating optimized and creative advertisements through Performance Max, an AI-powered tool that ensures ads are captivating and optimized for the best performance.

Snapchat’s AI Boosts Ad Revenue Despite Overall Revenue Decline

Google and Meta are big players in the advertising industry hence a small change in the right direction is likely to cause a massive increase in revenue. However, the change and boost AI is offering the advertising industry is also visible in the revenue earned by smaller companies such as Snapchat.

Snap, the creator of Snapchat, recorded a 30% increase in purchase-related conversions from the previous quarter due to using more AI in its systems. The company stated that the combination of improvements to its machine learning (ML) infrastructure and systems for ad ranking and optimization resulted in more relevant ads as well as conversions.

3. AI-powered advertising: Snapchat uses AI to target advertising to its users. This includes using AI to identify users' interests and demographics, as well as to track their behavior on the app.

— DMC (@AssetReset) June 2, 2023

Coming from a company that generates 99% of its revenue from advertising, AI provided a significant boost to Snap’s advertising revenue. Notably, the company did not provide a precise figure for its revenue from advertising for the second quarter. However, in total, Snap generated $1.068 billion in revenue, a 4% decline from the same period the previous year.

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