Marketing BS: The Future of Ads in AI Search

Microsoft is experimenting

When Google first launched 20+ years ago the consensus was that search did not monetize very well. At the time Yahoo was focused on display ads and trying to keep users within Yahoo for as long as possible (to monetize their views). It did not take too long for Google to figure out search ads on its path to become the worlds most dominant advertising platform.

When Facebook launched mobile the general concern was that it would not monetize very well. The desktop version had display ads on the sidebars, but there was no sidebar on mobile. Eventually Facebook figured out the newsfeed ad and went on to dominate non-search ads on the internet.

Amazon’s retail business has always been considered low margin. But now it runs ads against retail searches, and has become the third largest ad platform on the internet.

It has been a fairly consistent pattern that a platform company first gets user’s attention, and then finds a way to sell ads against that attention. It does not always work (I am looking at you Alexa/Echo), but it usually does.

One of the concerns with AI-driven search is that it does not result in “10 blue links”. By jumping directly to the answer to the query there is a question of “where do the ads go?”.

In yesterday’s Stratechery update (gated), Ben Thompson shared a screen shot from Mastodon from Matt Hodges showing a Bing AI-search/chat result with an imbedded ad:

Ben tried to duplicate the result, but Bing would not show him any ads. I tried myself was also not shown ads. But flights do not monetize very well for Expedia (or anyone except the airlines), so it should not be surprising that there are no ads in a new un-proven channel. So I tried adding a hotel to my search, and the ad appeared:

There will be complaints about these ads (“They ruin the integrity of the results”), but those complaints were the same when Google and Facebook first launched their ads (Amazon is going through it right now).

This implementation is unlikely to be the final one (They will at least put a word in the place of “ad”). Microsoft will continue to iterate and improve monetization over time. The only surprising thing here is how fast Microsoft is moving on monetization. Usually it takes some time to build an audience in a new product before any monetization is attempted. The world is moving faster now. Maybe the AI provided the suggestion on how to do it?

Keep it simple,

Edward