Behind the AI boom, a boring business is soaring with better ads

For years, DribbleUp, a sports equipment company, spent its own time and resou-rces figuring out whom it should advertise its basketballs and soccer balls to on Facebook. But for the last two years, it has placed those ads entirely through Facebook’s artificial intelligence (AI) tools. 

Since then, DribbleUp’s sales have outpaced its marketing expenses. It has also started spending more money on Facebook. The company’s experience speaks to how AI is reshaping the digital ad industry. Over the past three years, Google, Meta and other tech companies have used the same AI behind chatbots to power advertising. 

The emerging AI systems are helping companies automate their marketing. Small and large companies alike can now create ads, target audiences, bid for space and measure results. The process has made it easier for local businesses to develop campaigns as sophisticated as ones from corporate giants. 

 

The technology is also making the ads more effective, tech companies and brands say. Meta and Google, the industry’s leaders, are using it to better match companies with potential customers, increasing the odds they are paid for their service.

More advertising money is flowing to tech’s biggest firms as a result. In 2022, the year ChatGPT launched, AI-related sales totaled $1 billion, but that rose to $35 billion last year, according to Madison and Wall, a consulting firm that tracks the industry. This year, sales are expected to balloon by 60 percent, to $56 billion. 

“Google and Meta were already winning, and now, with these AI tools, they’re now lapping the field,” said Luke Stillman, a Madison and Wall managing director. The combination of the companies’ size, technological advantages and products means that in the age of AI, “being bigger isn’t just proportionally better for Google and Meta,” he said. “It’s exponentially better.”

Google and Meta are expected to report quarterly advertising sales growth that rivals the boom they experienced during the pandemic. The results are expected to build on last year, when Google posted a second consecutive year of double-digit advertising sales growth for the first time since 2019 and Meta’s ads business grew 22 percent. 

AI has fueled a digital ad boom because the technology can instantly sift through large amounts of information. It is helping Google and Meta serve users more enga-ging content. It is collecting deeper insig-hts into users’ interests, which improves the companies’ ability to target ads. And it is reducing advertising costs, which frees up money for bigger campaigns. “Anybody that’s close to the space has seen a real shift change,” said Wesley ter Haar, chief AI officer at Monks, a marketing firm. “Technology is ready to meaningfully replace manual effort in our industry.” 

There are downsides. Consumers may not only see more ads but also see ads that are more personalised, which can be unsettling. Advertisers have less control over how ads look, where they appear and how they perform.

“The process is more opaque, but more money is going into it because advertisers and users see benefits outweighing drawbacks,” Stillman said. 

Where advertisers once bought ads using keywords or demographics in a fairly straightforward process, AI has begun automating those and other parts of the advertising chain. The result is a system that has become easier for companies to use, even as the technology behind it has become more complex. 

The real business breakthroughs have come from targeting. It used to be that an advertiser would say, for example, “I want to target women in New York between the ages of 24 and 35.” Now it’s the opposite: Meta and Google are using AI to recommend customers the brands should be going after. Last year, L’Oréal, the cosmetics company, used Google’s tools on 800 campaigns for 30 brands in 23 countries. “This only works if the models are good,” said Krassimir Karamfilov, Meta’s vice president of product.

Gemini is also helping Google parse people’s queries and evaluate advertisers’ marketing materials, so that the company can serve the most relevant ad in every search, said Dan Taylor, Google’s vice president of global ads. Irrelevant ads have declined 40 percent, which is a lucrative change for a business that is paid only when people click on an ad. 

The AI tools are also taking over aspects of the creative and marketing process. Google has made it possible to change the messaging in ads in real time so that they better appeal to people searching online. 

Loop, which makes concert earplugs, used Google’s AI tools last year to help it expand internationally. The system automatically translated ad copy, which the company’s marketing team had developed, for non-English language countries and placed ads abroad using keywords for specific markets, Taylor said. “Not only does it enable an advertiser to move quickly, but us to be able to move faster,” Taylor added. 

Small companies have been some of the biggest beneficiaries of the new tools as they use AI to save money on designing the ads themselves. 

Chris Wilhelmi, global head of data and media at Monks, the marketing firm, said customers were saving 30 percent on the cost of campaigns. On content, it can be as much as 65 percent. Many are reinvesting those savings into testing and experimenting with new ad strategies. 

DribbleUp’s approach to marketing points to how things have changed. For years, brands evaluated advertising “like they did in the ‘Mad Men’ era,” said Ben Paster, DribbleUp’s chief marketing officer. Then came an obsession over analytics.

“Now everyone is approaching it as a technology problem,” Mr. Paster said.