A few Fridays ago, in Episode #896, I made the case that AI probably isn’t going to take your job anytime soon. AI is, however, being quite disruptive as more and more tasks are automated and there are examples of industries being so disrupted by AI that some folks within the industry need to take note now because, if they don’t adapt, their role — maybe even their whole company — could be at risk.
To be specific, today's topic is how AI is disrupting the advertising industry.
In May, the advertising world wrapped up its annual awards festival in Cannes, and while the champagne was flowing and trophies were being handed out for campaigns promoting everything from beer to the New Zealand Herpes Foundation, there's an undercurrent of disruption that's got everyone talking. The industry that prides itself on human creativity is finding itself squarely in the crosshairs of AI.
Behind the hubbub is Mark Zuckerberg recently promising that brands will soon be able to simply tell Meta what they want to achieve with an ad campaign and how much they're willing to pay, and AI will handle the rest. Sam Altman from OpenAI went even further, claiming that 95% of what marketers currently use agencies and creative professionals for will soon be handled by AI almost instantly and at virtually no cost. Those are bold claims, but when you look at the data, they might not be that far off.
Let me share some numbers that really put this in perspective. Global ad spending is growing at about 6% annually and is expected to maintain that pace for the next three years. But that growth is becoming highly concentrated. The four largest sellers of ads — Google, Meta, Amazon and TikTok’s parent ByteDance — accounted for more than half the global market last year. That's up from just over a third five years earlier. Eight of the ten largest ad sellers are now tech firms. At Cannes, these digital giants literally set up a tent city along the beach, establishing their dominance in the physical world just as they have online.
So how exactly is AI strengthening their grip on the advertising industry? It's happening in three main ways. First, machine learning is dramatically improving ad targeting. Meta's AI-powered Advantage+ system claims to increase brands' return on ad spending by 22%. Google's Performance Max product reportedly raises sales by over 10%. And Google's experimenting with ads in its AI-powered search mode, which could be even more effective because AI queries are two to three times longer than regular searches, meaning Google knows not just what you're looking for, but why you're looking for it.
Second, AI is revolutionizing how we measure ad effectiveness. There's a startup called Alembic that's using contact-tracing algorithms originally developed during COVID to track whether people who see ads actually buy the products. As an example, Alembic analyzed billions of rows of data and found that Delta Airlines' sponsorship of medal ceremonies at last year's Olympics delivered a better return on investment than any of their other promotions. That level of granular analysis just wasn't possible before.
Third — and this is where it gets especially scary for creative professionals — tech firms now believe they can create the ads themselves. TikTok just unveiled AI-powered tools that generate video commercials from text or photos. Meta recently launched features for automatically personalizing ad copy for different audiences in ten languages. And, as a concrete example, a betting company called Kalshi recently aired a cinematic TV ad made with Google's AI tools. The Kalshi spot was created in just 48 hours for $2,000 by a director who joked that he got to stay in his underwear for the entire shoot.
Now, ad executives are pushing back, arguing that AI models designed to produce the most likely answer aren't suited to creating campaigns that truly stand out. They have a point – in a world where every company can create passable ads with AI, commissioning content that breaks through the noise might become even more valuable. Some agencies are already adapting by switching from hourly billing to flat fees to protect their revenue as AI reduces the hours needed to create campaigns.
Alas, investors at this time aren't convinced by the advertising industry’s arguments. Four of the five big agency holding companies have seen their share prices drop since the beginning of last year. In response to these market moves, WPP is looking for a new CEO. Omnicom and Interpublic are planning to merge. Only Publicis has avoided the slump, largely by convincing the market they've invested enough in AI to be protected.
Relatedly, as consumers increasingly turn from Google searches to AI chatbots for recommendations, advertisers need to figure out how to ensure their brands are recommended by ChatGPT, Gemini, and other AI assistants. Some companies are already creating promotional material aimed not at humans, but at the large language models crawling the web for information.
A startup called Evertune that analyzes brands' standing with chatbots by posing tens of thousands of queries. They found that when asked to recommend bedsheets, for example, different AI models have surprisingly different preferences. Meta's bots like a brand called Mellanni, while Casper is popular with most models except Gemini. The variations appear to come down to training data: while Google and OpenAI license content from Reddit, Meta's LLMs lean heavily on its own social media platforms.
This means influencing LLMs requires influencing their sources. It involves building a loyal online following and, ironically, brings back the importance of old-school public relations. But there are other tricks too. AI models may struggle to read infographics, so those should be converted to text. And they love detailed product descriptions that would put most humans to sleep. A lengthy passage about a breakfast cereal's ingredients might never be read by human eyes but could convince an AI to recommend it.
Looking ahead, as AI agents are deployed to make buying decisions on our behalf, advertisers will need to figure out how to influence our digital servants. Google recently unveiled a shopping agent that alerts users when prices fall below certain levels. These agents may soon have discretion to make more complex purchasing decisions. We're heading toward a future where AI creates ads and targets them — and then a blend of humans and agents acting on behalf of humans make buying decisions based on those ads.
The advertising industry has weathered technological disruption before when dollars flowed from traditional media like newspapers and TV to digital platforms. But this AI revolution feels different because it's automating the creative process itself – something the industry long considered uniquely human. The rosé will surely keep flowing at advertising award ceremonies in Cannes for years to come, but increasing disruption by AI is also a certainty and so the advertising industry is in for a wild ride.
And, if you’re not in advertising or content creation, what aspects of your role or business are automatable? What parts of your industry and role are most ripe for AI disruption? Perhaps a great conversation to kick off with Claude or ChatGPT!
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