What you need to know

• The tech valuation miseries of late 2022 are now fading into the rearview mirror as the three big online advertising giants, Alphabet, Meta, and Amazon, hoover up their huge respective shares of global digital dollarydoos.
• Their focus now is on what comes next - and that's all about AI, according to this season's earnings calls.
• Alphabet, Meta, and Amazon are heavily investing in AI to enhance their advertising services and improve user engagement.
• Alphabet's CEO Sundar Pichai believes AI advancements will transform user experience and connect user intent with relevant ads, citing features like AI Overviews and Circle to Search.
• Google is rolling out AI Overviews to over 100 countries, potentially reaching more than one billion users monthly.
• Meta's CEO Mark Zuckerberg highlighted the positive impact of AI on advertising effectiveness, with over a million advertisers utilising generative AI tools to create millions of ads.
• Meta's AI-driven feed and video recommendations led to increased user engagement on Facebook and Instagram, with notable rises in time spent on these platforms.
• Amazon is deploying generative AI-powered tools to enhance creative capabilities across display, video, and audio advertising.
• Amazon's generative AI initiatives include custom video generation from product images and expanded AI capabilities for shopping and seller insights.
• All three companies say AI is a critical component for future advertising strategies, aiming for improved relevance and effectiveness in ad delivery.

Alphabet, Meta, and Amazon are all leaning heavily into AI to drive the next generation of advertising services, and with it, continuing growth. With earnings season now behind us, it is clear from the calls with investors that AI, and especially generative AI, will remake service levels and improve advertiser outcomes. At least that's the theory.

For Alphabet, which arguably has the most to lose if AI search upends traditional search, AI is seen as a catalyst for enhancing advertising performance. But rather than a threat, CEO Sundar Pichai sees a path to salvation through an even greater understanding of user intent and the ability to better connect that intent to the most relevant ads. 

"In Search, recent advancements, including AI Overviews, Circle to Search, and new features in Lens, are transforming the user experience, expanding what people can search for and how they search for it. This leads to users coming to Search more often for more of their information needs, driving additional search queries," Pichai said.

At the time of the call with analysts (in late October), Google had just started rolling out AI Overviews to more than 100 new countries and territories. "It will now reach more than one billion users on a monthly basis," he said.

"We're seeing strong engagement, which is increasing overall search usage and user satisfaction. People are asking longer and more complex questions, and exploring a wider range of websites. What's particularly exciting is that this growth actually increases over time, as people learn that Google can answer more of their questions."

Furthermore, he said, the integration of ads within AI Overviews was performing well, and helping to connect people with businesses as they search.

"Circle to Search is now available on over 150 million Android devices, with people using it to shop, translate text, and learn more about the world around them. A third of the people who have tried Circle to Search now use it weekly, a testament to its helpfulness and potential," Pichai said.

"Meanwhile, Lens is now used for over 20 billion visual searches per month." Google Lens is a tool that turns visual content into an interactive marketing opportunity. It is designed to enable consumers to search and shop directly from images they see in the real world.

"Lens is one of the fastest-growing query types we see on Search, because of its ability to answer complex, multimodal questions, and help in product discovery and shopping," Pichai said.

Over at Meta, founder Mark Zuckerberg was also proselytising the potential for AI to improve advertising effectiveness and engagement for brands and superior user experiences for users. And Amazon, which has emerged in recent years as an advertising powerhouse in its own right courtesy of retail media, said it is deploying generative AI-powered creative tools across display, video, and audio, to enhance advertising capabilities. 

But first to the numbers.

Alphabet

In its latest quarter, Alphabet demonstrated solid advertising performance, with Google Services achieving US$76.5 billion in revenues, a 13 per cent increase year-on-year. Notably, Google Search revenues grew by 12 per cent to $49.4 billion, while YouTube Ads also saw a 12 per cent rise, reaching $8.9 billion. The growth was particularly driven by sectors such as financial services and retail, with the Insurance vertical playing a crucial role.

However, Alphabet faced challenges: Notably a 2 per cent decline in network revenues. The company attributed this to a revenue mix shift and tougher year-on-year comparisons from the previous quarter.

Company executives said they are optimistic about the advertising outlook long term, with expectations that innovations in AI will continue to supercharge Search and improve monetisation opportunities. Although the end of the US election silly season also means there will be a bit less heft in the tank (at least until the midterms roll around).

Meta

In the Q3 2024 Earnings Call, Meta painted a robust picture of its advertising performance, reflecting a 19 per cent increase in ad revenue year-over-year. Key verticals such as online commerce, healthcare, and entertainment/media have been pivotal in driving this growth. However, closer-to-home challenges remain, particularly in the Asia-Pacific region, where a slowdown in ad demand has been observed, resulting in a deceleration of overall impression growth.

Across its family of Apps, it achieved ad revenue of US$39.9 billion. The yield story was also solid, with the average price per ad increasing by 11 per cent year-over-year, driven by strong advertiser demand.

As to APAC, the company noted it was the slowest-growing region for ad revenue at 15 per cent, down from a previous growth rate of 28 per cent, primarily due to lapping a period of stronger demand from China-based advertisers. Overall impression growth across services increased by only 7 per cent, suggesting Meta faces challenges in expanding the ad inventory.

Amazon

Like its peers, Amazon, the third member of the global digital Triumvirate, showcased robust growth, with revenues reaching US$14.3 billion, reflecting an impressive 18.8 per cent increase year-over-year. This growth was largely fuelled by strong performance in sponsored products, which Amazon said demonstrated its capacity to connect brands with consumers effectively across various sectors, particularly retail and financial services.

However, despite this growth, the company acknowledged some of its newer advertising offerings are still in the early stages of development. These initial challenges highlight the dynamic nature of the advertising market, where immediate results may not always align with long-term potential, according to company officials.

To navigate the current advertising landscape, Amazon said it is focused on enhancing the relevance of advertisements displayed to users, and incorporating advanced optimisation controls for advertisers with a view to improving overall ad performance and customer satisfaction.

According to Amazon President and CEO, Andrew Jassy, "Our expansive reach, ability to service relevant offers to our customers, opportunity to engage customers from the top of the funnel to point of purchase, and leading capabilities around measuring outcomes at every touch point provide all types of brands with full-funnel advertising at scale."

He described the performance of Sponsored products as "meaningful growth on a very large base".

"We see further opportunity in driving even better performance for advertisers by further improving the relevancy of the ads we show and by providing additional optimisation controls. At the same time, some of our newer offerings are in their very early days. We're just entering our first broadcast season for Prime Video advertising, following a very strong showing at upfronts."

Robot wars

Development in AI and the impact on advertising featured heavily across the earnings calls of all three companies.

According to Zuckerberg, AI is having a positive impact on nearly all aspects of the companies work,  from what he described as core business engagement and monetisation to its long-term roadmaps for new services and computing platforms.

"I think this partially comes from having a vision and roadmap that is aligned with the direction that technology is heading, but even more importantly from our teams doing some really excellent work on execution on so many fronts," Zuckerberg said.

"Improvements to our AI-driven feed and video recommendations have led to an 8 per cent increase in time spent on Facebook and a 6 per cent increase on Instagram this year alone. More than a million advertisers used our GenAI tools to create more than 15 million ads in the last month, and we estimate that businesses using Image Generation are seeing a 7 per cent increase in conversions. And we believe that there is a lot more upside here."

Zuckerberg also went into detail about Meta's own large language model, Llama.

"We're also seeing great momentum with Llama. Llama token usage has grown exponentially this year, and the more widely that Llama gets adopted and becomes the industry standard, the more the improvements to its quality and efficiency will flow back to all of our products. This quarter, we released Llama 3.2, including the leading small models that run on-device and open-source multi-modal models. We're working with enterprises to make it easier to use, and now we're also working with the public sector to adopt Llama across the US Government."

Zuckerberg described the Llama 3 models as an inflection point in the industry. "I'm even more excited about Llama 4, which is now well into its development. We're training the Llama 4 models on a cluster that is bigger than 100k H100s or bigger than anything that I've seen reported for what others are doing. I expect that the smaller Llama 4 models will be ready first, and they’ll be ready, we expect sometime early next year."

That matters, he said because "This will offer new modalities, capabilities, stronger reasoning, and much faster. It seems pretty clear to me that open source will be the most cost-effective, customisable, trustworthy, performant, and easiest-to-use option that is available to developers, and I'm proud that Llama is leading the way on this."

Virtuous cycle

Alphabet's Pichai was just as ebullient about the firm's long-term focus and investment in AI, saying they're already paying off and driving success for both the company and its customers.

"We are uniquely positioned to lead in the era of AI because of our differentiated full-stack approach to AI innovation, and we're now seeing this operate at scale," he said.

Three things underlie this, he said. "The first is a robust AI infrastructure that includes data centres, chips and a global fibre network. Second, world-class research teams who are advancing our work with deep, technical AI research, and who are also building the models that power our efforts."

Third is what Pichai described as Alphabet's broad global reach through products and platforms "that touch billions of people and customers around the world, creating a virtuous cycle".

Amazon's Jassy meanwhile homed in on the potential of generative AI for the tech giant's advertising business. "We're continuing to support brands of all sizes with our generative AI-powered creative tools across display, video, and audio, including our video generator that uses a single product image to curate custom AI-generated videos."

He also discussed how generative AI has become pervasive across Amazon with hundreds of apps in development or launched for consumers.

"We've expanded Rufus, our generative AI-powered expert shopping assistant to the UK, India, Germany, France, Italy, Spain, and Canada. And in the US, we've added more personalisation, the ability to better narrow customer intent, and real-time pricing and deal information."

The company also recently debuted AI Shopping Guides for consumers, which he said simplify product research by using generative AI to pair key factors to consider in a product category with Amazon's wide product selection, "making it easier for customers to find the right product for their needs."

"For sellers, we've recently launched Project Amelia, an AI assistant that offers tailored business insights to boost productivity and drive seller growth," Jassy said. "We continue to rearchitect the brain of Alexa with a new set of foundation models that we'll share with customers in the near future, and we're increasingly adding more AI into all of our devices."

And a final punctuation point - last week Amazon announced in $US4bn investment in Anthropic, the LLM rival to OpenAI which is heavily backed by Microsoft.