Latest / Retail Media Breakfast Club / Ads in AI Are Older Than You'd Think
Transcript
- Advertising in AI-Driven Commerce: Looming Shift === [00:00:00] eMarketer put out a projection a couple of months ago that produced somewhat of an eye roll around the media ecosystem. Their projection was that search advertising within AI will reach [00:00:15] $29 billion within five years. [00:00:18] And for context, that is the same trajectory that retail media took in its early years. The skepticism I've heard from various folks in the [00:00:30] industry is generally rooted in the fact that it's hard to project off of something that is so early and so nascent. [00:00:39] But here's the thing, advertising within AI LMS isn't as nascent [00:00:45] as you think. Let's jump in. [00:00:47] [00:00:48] [00:00:48] So first of all, this is already happening. Ads in LLMs aren't a pie in the sky concept. They're working business models. With two years of performance data, [00:01:00] Microsoft launched sponsored links within Bing Chat back in February, 2023, making it the first major consumer service to monetize conversational ai. [00:01:11] Microsoft says these ad units perform even better than [00:01:15] traditional search ads with 73% higher click-through rates, and 16% stronger conversions compared to traditional search. As we've spoken about many times on the show, Amazon has moved quickly in this space as well. [00:01:28] This year they've been [00:01:30] testing sponsored product ads within Rufuss responses using their LLM to generate helpful product blurbs that make ads feel like natural recommendations. Um, the point about natural recommendations can be [00:01:45] debated. This is something that Scott Wino brought up on the, Amazon earnings call is that, uh, rufuss was. [00:01:51] Trying to do everything possible to make him buy a product that came from a sponsor. So. [00:01:57] Debatable on how much people like them, but the [00:02:00] reality is when users ask Rufuss about noise canceling headphones, they might see organic suggestions plus a clearly labeled sponsored listing. And that's been in place for a while now. And finally perplexity, who's taken a bit of a different approach, [00:02:15] launching sponsored follow up questions that appear after users queries. [00:02:20] So if you are asking about ice cream, you might see a sponsored prompt that says something like, does Whole Foods sell fresh desserts with an answer [00:02:30] highlighting whole foods dessert offerings? So that is a different twist on native advertising in the conversational age. [00:02:40] In the written edition of this podcast, which you can find at retail media [00:02:45] breakfast club.com, you can also see a timeline I've created. Showing the developments here and. Just looking well, there's actually been a lot of progress in this area. I was also really interested to see outside of the US is there some, [00:03:00] some secret, exciting thing happening in China, which is where some exciting AI development is taking place. [00:03:06] And to be honest, the advertising integration isn't dramatically more advanced than Western platforms. Alibaba's Taobao [00:03:15] Win-win handled over 5 million shopping queries by November 20, 23. The main difference is that the Chinese platforms integrated commerce from their launch rather than. [00:03:24] Adding it later. And that's more a function of the fact that [00:03:30] the Chinese commerce system revolves around super apps. Um, but the fundamental advertising mechanics are pretty similar across markets [00:03:39] as I've been sharing in recent weeks. I believe that. These [00:03:45] developments might pose an existential threat to the industry of retail media. Onsite advertising, which is those sponsored products, listings and display banners shown on retailer websites and apps. Those are [00:04:00] going to see less traffic when fewer consumers visit retailer websites. [00:04:05] Brands and retailers that I'm speaking with have noted a drop off in traffic from Google and and search, and an increase in traffic from. [00:04:15] LLMs and that LLM traffic is very targeted. People come onto a website knowing exactly what they wanna buy, and there's not a whole lot of discovery and comparison going on from that traffic, [00:04:29] [00:04:30] even if the ad traffic doesn't drop significantly due to purchases being made by agents, specifically, many consumers conducting all of their research within an LLM and just going to a retailer.com to make a [00:04:45] transaction means that they're not super. Aware and open to ads from alternative products. [00:04:53] They've already made their decision. They know exactly which skew they want to buy, and they're not gonna be convinced otherwise. [00:05:00] So what does that do? That means they're sort of immune to these ads. They're not clicking on them. The brand's not seeing as good results from their advertising efforts on a retailer.com as they used to before. [00:05:12] When people would actually do their [00:05:15] research behaviors on a retailer.com. So even if the agent traffic is slow to move. People are doing a lot more of their discovery and comparisons within an LLM. [00:05:30] When your time, budget and team are already maxed out. Keeping up with retailer platforms and media requirements can feel like a never ending labyrinth. That's why even the best [00:05:45] brands bring in an execution partner. [00:05:47] Acosta Group makes retail media execution simpler. They stay ahead of every platform. Update tech shift. And media spec, so your campaigns actually show up and [00:06:00] perform without draining your team. [00:06:02] Let Acosta group handle the chaos behind the scenes so you can keep building the brand. Check out Acosta Group and tell them Retail Media Breakfast Club sent you. That's A-C-O-S-T [00:06:15] group. [00:06:16] [00:06:17] Well, what's interesting to track right now is how quickly new advertising formats are emerging, and some are really very interesting. Microsoft being an early mover in this space, they're starting to do really interesting things. One is [00:06:30] called a showroom ad, which basically recreates the experience of being in a car dealership or an electronic store, and it's a very immersive experience. [00:06:41] ~It's you can,~ [00:06:41] ~and ~and it's set up and merchandised by the [00:06:45] brand. Very interesting to check out. But the one that's really blown me away is the concept of dynamic ad generation, which is where the AI creates entirely new ad copy in real time based on your specific [00:07:00] query location and even seasonal context. [00:07:03] The AI isn't just showing you pre-written ads, it's writing new ones on the spot that match exactly what you're looking for. Incredible. [00:07:12] And going back to that performance data from [00:07:15] Microsoft, Microsoft reports add relevance metrics in copilot are 25% better than traditional search, which suggests that people actually find these conversational ads helpful rather than annoying ad units that drive better results for brands.[00:07:30] [00:07:30] That's gonna get the attention of marketers, and that's why I'm open-minded about this lofty projection for search advertising spend within AI to hit $29 billion within five years. Like I said, roughly the same trajectory [00:07:45] as retail media when it started scaling from near zero. [00:07:48] Smart retailers won't be those with the flashiest AI shopping assistance or chat bots on their websites. They'll be the ones who make it easy for both humans and [00:08:00] bots to do business with them. Retailers need to treat AI agents as VIP customers ensuring product catalogs, inventory levels, and pricing are easily accessible. [00:08:10] Loyalty programs could become. A significant moat [00:08:15] for these retailers. When an AI agent comparison shops on your behalf, it can factor in your tier status points and exclusive benefits, [00:08:25] sampling programs, things like that. [00:08:27] The tech is here. Shoppers are [00:08:30] changing early movers are already seeing results. This shift is happening. The question is how fast retailers and brands will adapt to more conversational shopping and AI agents making recommendations and ultimately making [00:08:45] purchases. ~Smart retailers won't be those with the flashiest AI shopping assistance.~ [00:08:46] ~They'll be the ones who make it easy for both humans and bots to do business with them and brands. ~Brands are always going to chase down whichever platforms will produce returns for them, whether that's retail media or LLMs. [00:08:54] I hope this history shows you we might be further along than you think in this journey, and to [00:09:00] remain open-minded about where we might be in just five years.