With an increasing number of businesses adapting to digital transformation and AI, there will be an uptick in ad spends, assert industry heads
The advertising world seems set for a positive comeback as big tech results this quarter show signs of recovery after the muted ad revenue growth last year. The industry is starting to look towards an increase in ad spending compared to last year, pointing to better results for the coming months.
After major economic downturns, a global slowdown in tech companies, layoffs on a large scale and other cost-saving measures, big tech seems to be finally recovering, and the advertising world is definitely pumping up the money to boost their growth. This growth is being supported by massive investments in AI, which were revealed last quarter.
Meta recorded a 32% growth in its ad impressions YOY compared to 15% growth last year. “We’re focused on improving monetization efficiency of products that monetize at lower rates today, like Reels and our messaging services; and, more broadly, driving measurable performance and returns for our advertisers.
On Reels, we are making good progress on monetization, with more than 3/4 of our advertisers now using Reels ads. We remain focused on further reducing the Reels revenue headwind and narrowing the monetization efficiency gap with our more mature surfaces,” said Meta’s Chief Financial Officer, Susan Li, said during the post-earnings call.
Alphabet also saw a rise in advertising revenue. Philipp Schindler, SVP and CBO, Google said, “In Google Advertising, Search & Other revenues grew 5% year-on-year, led by solid growth in the Retail vertical. In YouTube Ads, revenues were up 4% year-on-year, driven by growth in brand, followed by direct response, reflecting further stabilization in advertiser spend.”
Signs of good times
Sanjeev Jasani, COO, Cheil India says recovery in the advertising economy is highly promising and sustainable. “With businesses adapting to the new normal and digital transformation accelerating, advertising demand will continue to grow. Consequently, we can expect revenues to further increase for both Alphabet and Meta.”
Girish Ramachandra, Founder & CEO of Shopalyst talks about Meta and its performance in the Indian market. “Meta platforms have an amazing reach in the Indian market and hence a regular component of their media mix notwithstanding other choices in the market. Also, the presence of a large number of influencers on Meta platforms (particularly Instagram) contributes to brands in categories like beauty, personal care and fashion choosing to direct their ad spends here.”
“Given the share of attention that digital media is getting from consumers today, we expect an uptick in ad spends on Meta as well as other popular media platforms,” Ramachandra adds.
Speaking about the expectations from digital advertising in the coming future, Nitin Menon, Co-Founder & Managing Partner, NV Capital, opines that recovery is expected to be strong. “Alphabet and Meta both control a large majority of the digital advertising revenues through their various platforms like Search, YouTube, Facebook, Instagram, etc. Digital advertising revenues will be slightly subdued, but their recovery has been strong and digital advertising continues to be the dominant theme globally and usurping broadcast advertising. This can be seen with companies like Disney where they are also making a shift from their legacy broadcasting business and focusing on streaming. Digital advertising will continue to grow from strength to strength with minor blips in between.”
Hareesh Tibrewala, Joint CEO, Mirum India, believes brands are back to spending after Covid and the recessionary situation in 2022. “APAC and MENA markets continue to be strong and robust. And NAM seems to be bouncing back from recession as well. Besides, during the past 12 months, there has been major restructuring and manpower reduction, making these tech companies leaner. All this has resulted in revenue and profit growth.”
Karan Taurani of Elara Capital attributes Meta’s healthy ad growth of 12% YoY (highest since Q4FY21) to the support from the commerce vertical, which has increased ad budgets. “This is yet another sign of healthy digital advertising recovery in the developed markets, which augurs well for Affle (35% exposure to developed markets).”
AI AIding advertising growth
Both these companies also saw AI as a major boost to their ad revenues. Meta and Alphabet both have used this tool to monetize their platforms, and it seems to be working out well for them.
Mark Zuckerberg, CEO of Meta, said during the earnings call that beyond Reels, AI is driving results across their monetization tools through automated ads products, which is called Meta Advantage. “Almost all our advertisers are using at least one of our AI-driven products. We’ve also deployed Meta Lattice, a new model architecture that learns to predict an ad’s performance across a variety of datasets and optimization goals,” he said during the conference call this quarter.
Talking about Alphabet being a pioneer in AI solutions, Schindler of Google said, “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.”
Experts believe AI is definitely a key factor for the growth these big tech companies are seeing. Taurani says most of the tech giants – Google/Meta are adopting AI-led products for driving ad spends efficiency. “AI tech could be the next big thing within programmatic advertising for driving higher ROI/conversions, it will be very important for peers in this space to adopt this technology.”
As for Menon, the industry is definitely smitten by the workings of AI and big tech will see further growth due to this technology. “The number of AI tools and platforms are just increasing by the day. The fact that ChatGPT reached 100 mn subscribers within 2 months of the launch just showcases the potential and opportunity for AI to expand. Today Google has Bard and Meta’s LLaMA, though still nascent, the opportunity for AI adding credence to their existing platforms and creating new platforms on the advertising side will surely increase in the future.”
Rahul Vengalil, Executive Director, Everest, Rediffusion Group sheds light on how generative AI products by these big tech companies can be used by advertisers as well to market their brands. “Generative AI will help a lot of companies, small companies, as well as some large companies in increasing the number of creative that they could probably make, which will then result in a higher amount of media spend. One more thing Generative AI brings to the table is some small advertisers who are currently not spending a lot may start spending because now good creatives can be done with generative AI, that’s another way to look at it.”
Jasani believes that AI is definitely a game-changer for big tech companies. “Through AI-powered algorithms, tech companies can enhance ad targeting, improve user experience, and efficiently manage resources, leading to cost efficiencies and higher returns on investment. AI’s continuous advancements will only amplify its impact on tech companies’ financial performance in the future.”
Time will tell how this tool will transform the technology space and if next year’s quarterlies will reflect the effect of AI on their revenues and their potential growth.
