Meta Boosts Ad Efficiency With AI... Google Faces Risk of Chatbots Eroding Search Market

The Two Giants of Digital Advertising Head in Different Directions
UBS: "Concerns About Search Cannibalization Resurface"
Heavy Investment Costs a Shared Challenge for Both Companies

The expansion of artificial intelligence (AI) has driven a wedge between Meta and Google, the two giants of the global digital advertising market. Meta is rapidly growing its revenue by using AI to improve advertising efficiency, while Google’s core search advertising business is seen as facing a threat from the spread of AI chatbots.

According to U.S. media outlet CNBC on Sunday (local time), Meta’s advertising revenue in the third quarter of this year rose 26% year over year to $63.1 billion (about KRW 84.5 trillion). By contrast, Google’s revenue from search and other businesses increased 12% to $63.4 billion (about KRW 84.9 trillion). The 14-percentage-point gap between their growth rates was the widest since 2021.

Meta boosted revenue by using AI to improve ad placement and operational efficiency on Facebook and Instagram. Meta Chief Financial Officer Susan Li said advertisers using the recommendation features of its AI advertising tools saw about 5% more conversions, such as purchases, than those who did not, and increased their ad spending by 9%. About 10 million advertisers used the AI advertising tools in the third quarter of this year.

Google, meanwhile, has found itself in direct competition with AI chatbots. Users have begun asking OpenAI’s ChatGPT or Anthropic’s Claude directly for answers instead of searching on Google and then visiting websites. Nate Elliott, an analyst at market research firm eMarketer, warned, “If AI chatbots are more helpful in finding the information people want, search habits could change for the first time in a generation,” adding, “This could have disastrous consequences for Google’s advertising business.”

Google has introduced AI Overviews and AI Mode in its search engine, but these features risk cannibalizing its existing search advertising business. If users are satisfied with AI-generated summaries and do not visit websites, advertising revenue could fall. Google said the number of search queries reached a record high in the third quarter of this year, but its revenue growth slowed. In a report following Google’s earnings announcement, UBS analysts wrote, “Concerns that AI will cannibalize the search business are growing again,” adding that “Meta’s strong advertising performance and the threat from AI agents such as Muse are fueling those concerns.”

Google is seeking to diversify its business by promoting its Tensor Processing Units (TPUs), its AI chips, but Wall Street still sees search as the core business that determines the company’s valuation. Wedbush Securities said, “It will be difficult for the stock to rise unless the market’s perception of Google’s search business changes,” and noted that Google must prove it can continue generating revenue from search advertising in the AI era.

However, CNBC noted that massive AI investment costs are a burden for both companies. As they pour huge sums into developing AI models and expanding data centers, both companies recorded negative free cash flow in the third quarter. Google forecast full-year capital expenditures (CAPEX) of up to $205 billion (about KRW 274.52 trillion), while Meta projected up to $145 billion (about KRW 194.17 trillion).

This content was produced with the assistance of AI translation services.