Google's AI Tools Are Changing the Advertising Landscape
Google is making significant strides in the world of generative artificial intelligence (AI) tools, particularly for its advertising platform in India and across the globe. This move comes as Google faces the potential of declining digital ad revenue in an era dominated by AI.
In late April, Google”s parent company reported a second consecutive quarter of declining advertising revenue, a sector that constitutes nearly 80% of its annual revenue. Just a month later, the tech giant unveiled its generative AI tools for advertisers worldwide and introduced them to the Indian market in July.
During a media round table discussion on July 31st, Dan Taylor, the Vice President of Global Ads for Google, highlighted how these new tools, operating under the “Performance Max” banner, empower digital marketers to craft more relevant advertisements, expand their advertising reach, and deepen customer engagement. Taylor mentioned that prominent Indian companies like HDFC, Myntra, and Tata AIG are among those already utilising these innovative tools. We see it as an enhancement and a tool to exponentially increase the opportunity to reach consumers with relevant ads, to reach consumers with a relevant experience on their website,” Taylor explained.
Industry experts view Google”s strategic move as an effort to safeguard its long-term revenue. Digital ad spending growth has been slowing down, with GroupM predicting a decline of 1.5 percentage points in global digital ad spending growth to 5.9% in 2023, amounting to $856 billion. This poses a particular challenge for Google, given its heavy reliance on ad revenue. In Alphabet”s latest quarterly report, nearly 78% of its revenue, totaling $58.1 billion out of $74.6 billion, came from ads. The FY22 annual report disclosed ad revenue of $224.4 billion, representing 79% of its total revenue of $282.8 billion.
Jaspreet Bindra, founder of tech consultancy firm Tech Whisperer, and an industry veteran, sees Google”s approach to generative AI as a classic example of the “innovator”s dilemma.” He noted that while Google invented the foundational transformer model in 2017, it hesitated to be the first to commercialise it due to the direct threat it posed to Google”s substantial ad business. This challenge also attracted the attention of Microsoft. The emergence of generative AI now threatens to reduce the profit margins of Google”s ad business significantly. Bindra suggests that Google”s primary challenge is figuring out how to monetise this new search format introduced by generative AI, primarily through ads.
Publishers are also embracing generative AI, according to Google”s Taylor. They see the opportunity it presents for content creation, optimization, and enhancing their marketing efforts.
However, digital marketers believe that social media platforms could become formidable competitors for Google in the future. Shudeep Mazumdar, CEO of digital marketing firm Zefmo, pointed out that digital ad spending growth has been stagnating over the past several quarters. User-driven searches are also on the rise on social media platforms. As a result, ads on platforms like Google”s YouTube or Meta”s Instagram are expected to experience faster growth in the coming quarters compared to Google”s display ads. Mazumdar further stated that Google”s primary offerings is likely aim to attract brands to adopt generative AI to compete with rivals. Generative AI could potentially reduce the overall cost of advertising for brands and simplify the ad creation process, providing a temporary boost to stagnant digital ad spending.
In the short term, Google”s early foray into generative AI may have limited impact in India, but its long-term implications could be substantial. As the digital landscape continues to evolve, Google is strategically positioning itself to stay at the forefront of AI-powered advertising and maintain its dominance in the industry.
