Google seeks to guard its flanks with AI tools

Google is pushing ahead with generative artificial intelligence (AI) tools for its advertising platform in India and across the world, as it stares at a potential decline in digital ad revenue in the age of AI.

On 25 April, Google’s parent reported a second consecutive quarter of declining advertising revenue, which accounts for nearly 80% of the company’s annual revenue. Just a month later, it unveiled its generative AI tools for advertisers globally, and brought them to India in July.

At a media round table on 31 July, Dan Taylor, vice-president of global ads for Google, said the new tools under the “Performance Max” fold will help digital marketers craft more relevant advertising, widen the impact of advertisements, and deepen customer engagement. Financial services group HDFC, e-commerce platform Myntra and insurance firm Tata AIG are among Indian companies using these tools, he said.

“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 said.

Industry stakeholders sees the move as Google’s attempt to protect its revenue in the long run. Digital ad spending growth has slumped—GroupM expects global digital ad spending growth to fall 1.5 percentage points to 5.9% in 2023 to $856 billion. This is particularly concerning for Google, which relies heavily on ads. Out of Alphabet’s latest quarterly revenue of $74.6 billion, $58.1 billion, or nearly 78%, came from ads. Its FY22 annual report disclosed ad revenue of $224.4 billion, accounting for 79% of its total $282.8 billion revenue.

Jaspreet Bindra, founder of tech consultancy firm Tech Whisperer and an industry veteran, terms Google’s approach to generative AI as a “classical innovator’s dilemma”.

“Google invented the foundational transformer model in 2017, but then sat on it without being the first to commercialize, as it posed a direct threat to Google’s vast ad business. It is this that Microsoft also targeted—the advent of generative AI will basically cut down the margins of the massive-margin ads business that Google dominates. At present, Google’s biggest challenge will be to see how it can monetize this new format of search that generative AI has brought forth, through ads. It is this that Google will look to address, in a bid to maintain the margins of its primary revenue driver,” Bindra said.

Publishers too are joining in, according to Google’s Taylor. “The publishers that I’m talking to are embracing the opportunity of generative AI—from a content creation and optimization standpoint, as well as how they think about their own marketing efforts,” he added.

However, digital marketers believe social media platforms could eventually pose a stiff challenge for Google. Shudeep Mazumdar, chief executive of digital marketing firm Zefmo, said, “Growth in digital ad spending has been stagnating over the past four to six quarters. User-driven searches are also increasing on social media platforms—as a result, ads on Google’s YouTube or Meta’s Instagram are likely to see faster growth in the coming quarters, as against Google’s display ads,” Mazumdar said.

Mazumdar said Google’s key offerings will try to attract brands to the AI bandwagon to take on rivals. “Generative AI could make a difference here, in terms of the overall cost of advertising that brands incur.  This, coupled with the ease of creating ads through generative AI, may offer an interim boost to stagnant digital ad spending,” he added.

For now, the early move by Google may have a limited impact on India, though this impact could be significant in the long run.