For years, DribbleUp, a sports equipment company, spent its own time and resources figuring out who to advertise its basketballs and soccer balls to on Facebook. However, for the past two years, it has placed these ads exclusively through Facebook’s artificial intelligence tools.
Since then, DribbleUp’s revenue has outpaced its marketing spend. It also started spending more money on Facebook.
The company’s experience speaks to how AI is reshaping the digital advertising industry. Over the past three years, Google, Meta and other tech companies have used the same artificial intelligence as chatbots to support advertising.
Emerging AI systems are helping companies automate their marketing. Small and large companies can now create ads, target audiences, bid space and measure results. This process has made it easier for local businesses to develop campaigns as sophisticated as those from corporate giants.
Technology is also making ads more effective, tech companies and brands say. Industry leaders Meta and Google use it to better connect companies with potential customers, making them more likely to get paid for their services.
Thus, more advertising money flows into the largest technology companies. In 2022, the year of ChatGPT’s launch, AI-related revenue will reach $1 billion, but last year it grew to $35 billion. Madison and Walla consulting firm that tracks the industry. This year, sales are expected to increase by 60 percent to $56 billion.
“Google and Meta were already winning and now, with these AI tools, they are now outpacing the field,” said Luke Stillman, managing director of Madison and Wall. The combination of companies’ size, technological advantages and products means that in the age of artificial intelligence, “being bigger is not just proportionally better for Google and Meta,” he said. “It’s exponentially better.”
Google and Meta reported quarterly growth in ad sales on Wednesday, reminiscent of the boom they experienced during the pandemic. Google said ad revenue rose 16 percent to $77 billion in the quarter. Meta’s revenue jumped to $56.3 billion, up 33 percent from the previous quarter.
This growth helps explain why companies are spending hundreds of billions of dollars building data centers for new AI systems. Google has pledged to double capital spending to more than $175 billion this year, while Meta plans to spend more than $115 billion.
Rising costs have contributed to Meta’s plans to lay off 8,000 workers as it relies on artificial intelligence to carry out work that has been done by engineers. Google has resisted similar cuts and committed to hiring in key areas such as artificial intelligence and cloud computing.
Artificial intelligence has fueled the digital advertising boom because the technology can sift through large amounts of information instantly. It helps Google and Meta provide more engaging content to users, which increases the number of ads the companies can serve. It gathers deeper insights into user interests, improving companies’ ability to target ads. And it reduces advertising costs, which frees up money for bigger campaigns.
“Anyone close to space has seen a real shift change,” said Wesley ter Haar, director of AI marketing firm Monks. “Technology is poised to meaningfully replace manual efforts in our industry.”
There are downsides. Not only may consumers see more ads, but they may also see ads that are more personalized, which can be disturbing. Advertisers have less control over how ads look, where they appear, and how they work.
“The process is more opaque, but more money goes into it because advertisers and users see the benefits outweigh the drawbacks,” Mr. Stillman said.
Where advertisers once purchased ads using keywords or demographics in a relatively simple process, AI has begun to automate these and other parts of the advertising chain. The result is a system that is easier for companies to use, even as the technology behind it has become more complex.
The change starts with how AI has increased the amount of time people spend with Google and Meta. Because Gemini, Google’s artificial intelligence system, answers many search queries with condensed and complete answers, people search more. They have questions has grown into search and doubled down on its new artificial intelligence product, AI Mode, the company said.
For Meta, where videos have become a cornerstone of the business, the company said artificial intelligence helped Facebook increase user watch time by double digits and expanded the reach of Instagram videos by dubbing content into different languages.
But the real business breakthroughs came from targeting. It used to be that an advertiser would say, for example, “I want to target women in New York City between the ages of 24 and 35.” Now it’s the other way around: Meta and Google are using AI to recommend to customers which brands should apply.
Last year, cosmetics company L’Oréal used Google tools for 800 campaigns for 30 brands in 23 countries. She credited the tools with helping to increase revenue for her NYX Professional Makeup line.
“This only works if the models are good,” said Krassimir Karamfilov, Meta’s vice president.
Gemini also helps Google analyze people’s queries and evaluate advertisers’ marketing materials so the company can show the most relevant ad for every search, said Dan Taylor, Google’s vice president of global ads. Irrelevant ads dropped by 40 percent, a lucrative change for a business that only gets paid when people click on an ad.
AI tools are also taking over aspects of the creative and marketing process. Google made it possible to change the message in ads in real time to better reach people searching online. The system, which Google calls “responsive search,” creates and tests ad copy before automatically launching a campaign that best matches a user’s search interests.
Loop, which makes concert earplugs, used Google’s artificial intelligence tools last year to help it expand internationally. The system automatically translated ad text developed by the company’s marketing team for non-English countries and placed ads abroad using keywords for specific markets, Mr. Taylor said.
A spokeswoman for Loop said the company uses “real photos and real people” but that AI has sped up parts of its marketing process.
“Not only does it allow the advertiser to move quickly, but it also allows us to move faster,” Mr Taylor said.
Small companies have been some of the biggest beneficiaries of the new tools, using AI to save money on designing the ads themselves.
Chris Wilhelmi, global head of data and media at marketing firm Monks, said customers are saving 30 percent on campaign costs. For content, it can be up to 65 percent. Many reinvest those savings into testing and experimenting with new advertising strategies.
“By creating savings, you can fund new kinds of testing,” Mr. Wilhelmi said.
DribbleUp’s approach to marketing shows how things have changed. For years, brands have evaluated advertising “like the ‘Mad Men’ era,” said Ben Paster, DribbleUp’s chief marketing officer. Then came the obsession with analytics.
“Now everyone is treating it as a technology problem,” Mr. Paster said.
