As retail media continues to grow, Meta & Google announce new AI-powered ad products

Tech giants are moving in to take a larger share of retail advertising money. In doing so, they are offering newer advertising solutions using artificial intelligence, a wildly popular buzzword in the industry.

On Thursday, Meta announced a slew of new AI-driven ad updates for advertisers. It unveiled the first look of its so-called AI Sandbox which consists of AI-powered “creative standard enhancements” to help advertisers automatically apply small changes like ‘text variation,’ ‘background generation’ and ‘image outcropping.’ These tools the company claimed will help brands cut back on time and resources spent on repurposing creative assets. Meta is testing its AI Sandbox with a small set of advertisers and said the company will gradually rollout these features to a wider set of advertisers starting in July.

Meta also announced new AI enhancements to its Advantage+ shopping campaigns, that have helped improve conversions on ads run by DTC brands in the past. One of the new AI features will let brands duplicate their regular ads on Meta to Advantage+ shopping campaigns through Ads Manager. Meta said it is also testing a new creative format on ASC called ‘Catalog ads’ where brands can upload video content like customer demos across its family of apps. Meta claimed it will use AI and machine learning to automatically show the best video to users across its Feed, Stories, Watch and Reels formats. To improve measurement, Meta will provide advertisers with automatic performance comparison reports created through AI to compare the performance of an automated shopping campaign versus a regular Meta ad.

In addition, Meta is testing a new Advantage+ Audience tool that brands can use to reach new sets of customers outside of the set parameters of age and gender that they are targeting with the help of AI.

Separately, rival Google announced that it will “supercharge” the shopping experience on Google using Generative AI during its I/O developer conference earlier this week. Google is testing a new feature called Search Generative Experience that claims to do shopping research for users, summarizes insights from the Internet to give users the most accurate product details, prices and deals. Google said its AI-powered SGE is “shoppable” in nature, meaning that product results will carry information about the retailer’s site to make the purchase. The company claimed AI will simplify a user’s online shopping experience by sifting through the 35 billion product listings on Google’s Shopping Graph to give relevant results. Users need to opt into Google’s Search Labs, a new program to try the latest experiences from Google Search.

At a high level, all of these efforts are aimed at improving ad performance for brands that will, in turn, translate into more money for these digital ad platforms. One of the big challenges facing digital ad platform is the growing threat of retail media. More retailers and e-commerce companies like Walmart, Instacart and even Dollar General are seeking to build out their own advertising platforms, enticed by the high-margin, lucrative businesses that companies like Google and Meta.

According to e-marketer estimates, U.S. digital retail media ad spending grew 31.4% to reach $40.81 billion in 2022. By 2024, this is expected to touch $61.15 billion, making up nearly 20% of digital ad spending. Amazon dominates this retail media spend and generates roughly $30 billion in advertising revenue a year. For the most recent quarter, Amazon reported 21% year-over-year increase in ad revenue to $9.5 billion from $7.8 billion.

But now Meta and Google are trying to prove they can still grow their ad businesses with new technology. “Our general approach here with our ad platform is that we want to help provide tools that improve performance for advertisers, because when advertisers see better performance, they’re going to choose to spend more on our platform and that helps us as well,” said John Hegeman who leads product development for monetization teams at Meta.

Facebook-parent Meta recorded a 4.1% increase its advertising revenue to $28.1 billion at the end of March quarter; the company posted its first increase in sales in nearly a year, led by continued improvements in the company’s advertising business. The pace of growth in Alphabet-owned Google’s advertising revenue dropped 1% to $54.5 billion, but its search advertising business saw a 1.7% increase in revenue to $40.3 billion.

“With these changes, our models can better learn which characteristics might improve app performance across multiple surfaces like feeds, reels and stories,” added Hegeman. Meta said it is testing ads to monetize Reels earlier this week.

For its part, Google said the SGE feature will strengthen its core search experience. “We always focus on really trying to create helpful solutions, that are additive to what search already does. And this is a prime example of that,” said Lilian Rincon, senior director of product for consumer shopping.

Google said retailers should know that consumers are “apt for engaging in these sort of more conversational experiences” and “this is a really great way to help consumers with complex journeys.” Google opened up signups for Search Labs on Wednesday with access to SGE beginning in the coming weeks.

The digital ad industry has been in flux over the last few years — which has given retail media platforms like Amazon the ability to pounce. Apple made significant changes to the privacy settings of its software in 2021 with its iOS 14 update, giving iPhone users the choice of whether to allow advertisers to track their activity across apps or not. This upgrade has hurt advertising platforms like Facebook and Instagram, because they had less data available to deliver personalized ads before the iOS 14.5 upgrade. Meta executives had said that Apple’s App Tracking Transparency feature will cost the company $10 billion in 2022.

“Our response to Apple’s App Tracking Transparency has been focused on building privacy enhancing technologies that allow us to respect people’s choices, while also continuing to provide accurate measurement and strong delivery for advertisers,” said Meta’s Hegeman. “The Advantage+ work, the AI Sandbox and Generative AI tools are going to be helpful across multiple different platforms, including iOS, but also beyond that as well,” he added.

While these changes will continue to strengthen Meta’s algorithm, it is important to note that the success of Advantage+, so far, has been limited to a few categories like beauty products. As Modern Retail previously reported, smaller DTC brands have not seen a significant lift with Meta’s Advantage+ ads.