Meta ad revenue growth more than doubles Google Search as AI reshapes online advertising market

Meta and Google have dominated the online advertising market for nearly two decades. Both companies have made billions of dollars by showing advertisements to millions of people across their platforms. However, the rise of artificial intelligence (AI) tools such as ChatGPT is changing how people search for information and discover products online, creating different challenges for the two companies.

Meta's advertising revenue growth outpaces Google Search as AI reshapes the online advertising market. (Representative Image/Reuters)Meta's advertising business is now growing more than twice as fast as Google's Search business.

In the third quarter, Meta's advertising revenue increased by 26% from a year earlier, while Google's Search and other businesses reported 12% growth. This shows that Meta is gaining strength in online advertising even as AI changes the way people use the internet, according to CNBC.

Meta reported $63.1 billion in advertising revenue in the third quarter. Google's Search and other division brought in $63.4 billion during the same period. The two businesses are now almost equal in size, although Google remains slightly ahead in advertising revenue from Search and other services.

The difference in their advertising growth rates reached 14 percentage points. This was the widest gap in Meta's favour since 2021. Meta's faster growth also supports CEO Mark Zuckerberg's argument that the company's investments in AI are helping advertisers reach the right people on Facebook and Instagram.

Google is facing a different challenge as people increasingly use AI chatbots instead of traditional search engines. Tools such as ChatGPT and Anthropic's Claude allow users to ask questions and receive direct answers. This could reduce the number of people clicking on Google's traditional blue search links, which may affect the advertisements shown alongside those results, CNBC reported.

The growing popularity of AI assistants could change people's search habits. Meta has also recently launched its Muse assistant, adding another option for people looking for information online. At the same time, users are spending more time scrolling through Instagram, giving Meta more opportunities to show advertisements.

AI could create a serious challenge for Google's advertising business if people stop using traditional search engines. Nate Elliott, an analyst covering AI at Emarketer, told CNBC that people may start using ChatGPT, Claude or Muse instead of Google if these tools help them find information more easily.

He warned that such a change could be extremely damaging to Google's advertising business. Google's search engine is also changing because of AI. The company has introduced AI Overviews and AI Mode, which give users AI-generated summaries instead of simply showing links to other websites.

Although Google said search queries reached a record high in the third quarter, its Search revenue growth is slowing, CNBC reported. This creates a concern that Google's AI features could affect its traditional advertising business.

When users receive answers directly through AI summaries, they may have less reason to visit other websites or click on advertisements. Analysts at UBS said Google's advertising strength could face further pressure from Meta's strong results and the growing threat from AI assistants.

Meta has used AI to improve its advertising business after facing problems with Apple's privacy changes. In 2021, Apple introduced changes to its iPhone privacy settings that made it harder for Meta to track users and target advertisements.

This affected the company's ability to show personalized advertisements to iPhone users, CNBC reported. The impact of Apple's privacy changes was visible in Meta's financial performance. In 2022, Meta's revenue declined for the first and only time in the company's history.

The company then began investing more heavily in AI to improve its advertising tools and help businesses reach potential customers. The launch of ChatGPT in late 2022 also marked a major change in the technology industry.

OpenAI's chatbot brought generative AI into the mainstream and increased competition among technology companies. Meta initially struggled to develop its own advanced AI models and fell behind companies such as OpenAI and Anthropic.

However, it found ways to use AI to improve its advertising products, CNBC reported. Meta introduced an AI business assistant for advertisers about a year ago. The tool works with the company's Ads Manager system and helps businesses create advertising campaigns and improve their performance.

It gives advertisers recommendations on how to reach more customers and get better results from their spending. Meta's AI advertising tools are helping businesses get more customers, according to the company. Meta CFO Susan Li said advertisers who followed the AI assistant's recommendations saw almost 5% more conversions.

They also increased their advertising spending by 9% compared with similar advertisers who did not use the recommendations. Li also shared an example of how AI helped a business improve its sales. She said syrup producer Simply Organic Maple used Meta's AI assistant and recorded a 57% increase in purchases.

The company also saw a 36% fall in the cost of each purchase, showing how AI tools can help businesses get more sales while spending less on individual customers. The use of AI advertising tools is also increasing among businesses.

Nearly 10 million advertisers used at least one of Meta's AI tools during the third quarter, Li said during the company's earnings call last week. Google is also using AI to improve its advertising products. The company is bringing its Gemini AI models into its advertising systems across different platforms, including YouTube.

Google Chief Business Officer Philipp Schindler said the company is using Gemini across its entire advertising infrastructure to give advertisers better tools and improve the...