Meta's big AI play: Shoring up its ad business
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Investments in artificial intelligence are going a long way toward lifting Meta's business — which suffered its first-ever annual revenue decline last year — back into gear.
The big picture: For all the attention garnered by Meta's release of its Llama open source AI models, the company's more essential use of AI has been in leveraging the technology at the heart of its advertising business.
Driving the news: While Meta continues to invest in a far-off metaverse, executives over the past two years have shifted more of their investor messaging to focus on ways AI can bolster engagement and monetization to help the company make more money now.
- During its second quarter earnings call last month, Meta executives mentioned AI three times as often as they mentioned the metaverse.
- Analysts, eager to see short-term gains, also pressed the tech giant much more about its AI investments than its augmented and virtual reality products.
- "We've invested for years in AI, and it's now moving to the forefront of our business," said Justin Osofsky Meta's head of online sales, operations and partnerships, in an interview with Axios last week.
- "You're seeing it across the recommendations and ranking models as well as engagement and monetization."
Catch up quick: Less than two years ago, Meta executives began warning investors that changes to Apple's privacy policies would wreak havoc on its ad business, which brought in around $114 billion in 2022.
- Fears of a recession combined with Apple's changes caused Meta to report three consecutive quarters of year-over-year revenue declines in 2022, sending its stock into a tailspin.
- In response, Meta executives worked to rebuild its advertising tools using AI to better target, build and optimize ad campaigns.
- Last year, months before OpenAI released ChatGPT and Google released Bard, Meta released a new suite of tools called Advantage+ that leverage AI to automate huge chunks of the creative ad process for marketers, allowing them to optimize their ad campaigns faster and more efficiently.
- The company also began to lean more heavily on AI and machine learning to overhaul its content recommendations system.
State of play: Today, Osofsky said, nearly every one of Meta's many millions of advertisers is using at least one of its AI-driven ad tools, most prominently Advantage+.
- "There's a lot of the ways in which our investments in AI are paying off to allow people to measure results and to run more effective campaigns," he said.
- Meta has now reported two consecutive quarters of revenue growth, and executives forecast next quarter its top line will grow by at least 15%.
Our thought bubble: By choosing to focus on AI ads products and ensuring AI recommendations keep its users engaged for longer, Meta has the luxury of giving away access to its generative AI models instead of trying to turn a direct profit from them.
- Llama is more of a side play for the company, allowing it to win points with regulators and researchers while acting as a spoiler to competitors including Google and OpenAI.
- Nick Clegg, Meta's global affairs president, insisted to Axios in an interview last month that the goal of Llama is to help others, not make money or out-innovate competitors.
Yes, but: Meta executives haven't provided any sort of long-term AI product roadmap the way they did with the metaverse project.
- Meta CEO Mark Zuckerberg told investors July 26 that while his priority for the remainder of the year is to deploy "new AI-powered tools to speed us up," he's still not sure what the right level of capital expenditure should be because of uncertainty about how quickly new AI products will grow.
What to watch: As a way of spreading its AI bets, Meta is reportedly set to roll out a series of AI agent personas as early as September, with the goal of nudging users to spend more time on its platforms and to help advertisers engage those users.
