In today’s Issue:
- How much ad spend is misspent?
- What does AI look like without misspent ad spend?
- AI efficiency gains would actually boost ad spending
What proportion of advertising you see is actually relevant to you? How would the world change if every ad you saw were customised to suit you personally?
Not just what you want to buy…But how you want to be advertised to, too?
Like everyone else, I believe advertising doesn’t work on me. But I know I do have a habit of avoiding products whose advertising I don’t like…
And I like to see funny or entertaining ads. They can even brighten up my day.
But instead of getting any of that, I’m pestered with endless videos trying to sell me things I already have…
I suspect my existing stockbroker has spent thousands of pounds advertising itself to me. Good to know what my brokerage fees are being spent on…
All this begs an important question for shareholders. What would the revenue of Google, Facebook and Amazon look like if this pointless advertising problem were ever fixed?
Strangely enough, it could cause a crash in AI!
What does AI look like without misdirected ad spend?
The companies fuelling the AI boom are largely the same ones selling huge amounts of online ads. Their social media, ecommerce and website hosting services make money by selling advertising space.
This means that ad spend from everyday businesses is being used to fund the AI development and data centres you hear about.
If that ad spend were to drop, you’d likely see a flow-on effect in AI investment too.
The irony is that AI’s analytical prowess might well be how we stop needlessly serving up ads to the wrong people.
Put the two ideas together and you come to an interesting conclusion: AI is about to destroy itself by pointing out there’s no need to advertise a product to people who already have it.
Without that wasted ad spend, revenue at AI development companies will plunge. Who will pay to develop AI then?
If that were the correct analysis, all investors would instantly know when to short the NASDAQ in anticipation of AI’s imminent self-destruction: the moment your online ads start actually being relevant to you…
Unfortunately, what’ll actually happen is less entertaining. But it could be more profitable for you…
Why AI won’t be hoisted by its own petard
The whole point of AI is to make us more efficient… like recognising that I already have a brokerage account with the company currently paying to advertise that same account to me.
Wouldn’t it be ironic if online advertising companies like Facebook, Google and Amazon develop the AI that makes their own online advertising services more cost-efficient? If my brokerage company could save big money on its advertising spend simply by excluding its own customers.
Actually, it wouldn’t be ironic at all.
Efficiency gains are good for everyone. Except for the inefficient who get left behind and have to find something else to do instead. But that’s the price of growing prosperity over time.
Let’s say AI helps ensure that existing customers don’t see ads for products they already have. What happens next? Does total ad spending fall?
Nope. Someone else’s ad will appear instead, advertising a new and different product. One that the customer might actually want.
Perhaps the ad will even be replaced by someone who understands that bad ads make me less likely to buy their products…
Either way, we’re not talking about a “bad” disruption to ad spend from AI. We’re talking about higher productivity for marketing spend.
Better returns on ad spending would allow businesses to increase how much they’re willing to pay to show an ad to you. That competition could drive up ad revenue for online ad companies, not down.
AI’s skills could improve ad spending in other ways too. If it can help exclude existing customers from seeing an ad, it can also track whether a customer who saw an ad became more likely to buy a product. Or decided to avoid it, because they hated the ad.
That provable connection is a marketer’s dream. Or worst nightmare. Because it would justify, or disprove, how the marketing budget was spent.
Not everyone knows when their advertising budget is being wasted. The feedback is not always as obvious as it was for Bud Light or Jaguar after their “campaigns.”
AI could mean we are on the cusp of a revolutionary improvement in the quality and targeting of the ads we see.
The ad space in my online life is not the only arena this’ll occur in. AI can revolutionise countless other industries too.
Until next time,
Nick Hubble
Editor, Investor’s Daily
