Meta and Google have dominated the online advertising market for nearly two decades. Both companies have made billions of dollars by showing advertisements to millions of people across their platforms. However, the rise of artificial intelligence (AI) tools such as ChatGPT is changing how people search for information and discover products online, creating different challenges for the two companies.
Meta's advertising business is now growing more than twice as fast as Google's Search business. In the third quarter, Meta's advertising revenue increased by 26% from a year earlier, while Google's Search and other businesses reported 12% growth. This shows that Meta is gaining strength in online advertising even as AI changes the way people use the internet, according to CNBC.
Meta ad revenue grows faster than Google Search
Meta reported $63.1 billion in advertising revenue in the third quarter. Google's Search and other division brought in $63.4 billion during the same period. The two businesses are now almost equal in size, although Google remains slightly ahead in advertising revenue from Search and other services.
The difference in their advertising growth rates reached 14 percentage points. This was the widest gap in Meta's favour since 2021. Meta's faster growth also supports CEO Mark Zuckerberg's argument that the company's investments in AI are helping advertisers reach the right people on Facebook and Instagram.
AI chatbots challenge Google's search business
{{/usCountry}}The difference in their advertising growth rates reached 14 percentage points. This was the widest gap in Meta's favour since 2021. Meta's faster growth also supports CEO Mark Zuckerberg's argument that the company's investments in AI are helping advertisers reach the right people on Facebook and Instagram.
AI chatbots challenge Google's search business
{{/usCountry}}Google is facing a different challenge as people increasingly use AI chatbots instead of traditional search engines. Tools such as ChatGPT and Anthropic's Claude allow users to ask questions and receive direct answers. This could reduce the number of people clicking on Google's traditional blue search links, which may affect the advertisements shown alongside those results, CNBC reported.
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The growing popularity of AI assistants could change people's search habits. Meta has also recently launched its Muse assistant, adding another option for people looking for information online. At the same time, users are spending more time scrolling through Instagram, giving Meta more opportunities to show advertisements.
AI could create a serious challenge for Google's advertising business if people stop using traditional search engines. Nate Elliott, an analyst covering AI at Emarketer, told CNBC that people may start using ChatGPT, Claude or Muse instead of Google if these tools help them find information more easily. He warned that such a change could be extremely damaging to Google's advertising business.
Google's search engine is also changing because of AI. The company has introduced AI Overviews and AI Mode, which give users AI-generated summaries instead of simply showing links to other websites. Although Google said search queries reached a record high in the third quarter, its Search revenue growth is slowing, CNBC reported.
This creates a concern that Google's AI features could affect its traditional advertising business. When users receive answers directly through AI summaries, they may have less reason to visit other websites or click on advertisements. Analysts at UBS said Google's advertising strength could face further pressure from Meta's strong results and the growing threat from AI assistants.
Meta uses AI to improve ad targeting
Meta has used AI to improve its advertising business after facing problems with Apple's privacy changes. In 2021, Apple introduced changes to its iPhone privacy settings that made it harder for Meta to track users and target advertisements. This affected the company's ability to show personalized advertisements to iPhone users, CNBC reported.
The impact of Apple's privacy changes was visible in Meta's financial performance. In 2022, Meta's revenue declined for the first and only time in the company's history. The company then began investing more heavily in AI to improve its advertising tools and help businesses reach potential customers.
The launch of ChatGPT in late 2022 also marked a major change in the technology industry. OpenAI's chatbot brought generative AI into the mainstream and increased competition among technology companies. Meta initially struggled to develop its own advanced AI models and fell behind companies such as OpenAI and Anthropic. However, it found ways to use AI to improve its advertising products, CNBC reported.
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Meta introduced an AI business assistant for advertisers about a year ago. The tool works with the company's Ads Manager system and helps businesses create advertising campaigns and improve their performance. It gives advertisers recommendations on how to reach more customers and get better results from their spending.
Meta's AI advertising tools are helping businesses get more customers, according to the company. Meta CFO Susan Li said advertisers who followed the AI assistant's recommendations saw almost 5% more conversions. They also increased their advertising spending by 9% compared with similar advertisers who did not use the recommendations.
Li also shared an example of how AI helped a business improve its sales. She said syrup producer Simply Organic Maple used Meta's AI assistant and recorded a 57% increase in purchases. The company also saw a 36% fall in the cost of each purchase, showing how AI tools can help businesses get more sales while spending less on individual customers.
The use of AI advertising tools is also increasing among businesses. Nearly 10 million advertisers used at least one of Meta's AI tools during the third quarter, Li said during the company's earnings call last week.
Google brings Gemini AI into advertising
Google is also using AI to improve its advertising products. The company is bringing its Gemini AI models into its advertising systems across different platforms, including YouTube. Google Chief Business Officer Philipp Schindler said the company is using Gemini across its entire advertising infrastructure to give advertisers better tools and improve the quality of advertisements.
Google is also earning money from advertisements beyond its traditional search engine. YouTube remains an important part of its advertising business. The platform helped Google generate an additional $11 billion in revenue during the third quarter, on top of the $63.4 billion reported by its Search and other divisions, CNBC reported.
Meta and Google increase AI spending
Both companies are now investing heavily in AI infrastructure, but investors are worried about the cost. Meta and Google are spending hundreds of billions of dollars to build the data centres, computer systems and other infrastructure needed to develop and operate AI models. Investors want to know whether these investments will generate enough additional revenue in the future.
Google expects to spend up to $205 billion on capital expenditure this year. Meta, meanwhile, expects its capital expenditure to reach as much as $145 billion. These investments are putting pressure on both companies' finances, with their spending pushing them into negative free cash flow territory, CNBC reported.
The companies' heavy AI spending has also affected their stock market performance. Alphabet, Google's parent company, suffered its worst-ever trading day after reporting disappointing third-quarter results on Wednesday. Its shares fell more than 12%, wiping out around $500 billion in market value.
Meta's shares have also faced pressure from investors. Its stock fell 14% in October, marking its worst monthly performance since October 2022. This came after a 27% rise in September, which was its strongest monthly performance since November 2022, CNBC reported.
Investors are questioning whether the huge investments in AI will deliver enough financial returns. Both companies are spending heavily to build new AI products and services, but there is uncertainty about how quickly these investments will translate into higher revenue and profits.
Meta and Google look for new revenue sources
Meta and Google are also trying to reduce their dependence on advertising. Meta still gets around 98% of its total revenue from advertisements. The company is investing in AI models and AI agents with the aim of building subscription-based services and creating new sources of income, CNBC reported.
Meta is exploring paid AI subscription services as part of this plan. The company wants to turn some of its AI products into services that users pay for, instead of depending almost entirely on advertising revenue.
Google is in a stronger position when it comes to earning money from businesses outside advertising. Advertising now accounts for less than two-thirds of Google's total revenue. Its cloud computing business is also growing rapidly as companies increase their spending on AI infrastructure and computing services.
Google Cloud reported quarterly revenue of $31 billion, with growth of more than 100%. Demand for its cloud infrastructure and custom AI chips, known as tensor processing units (TPUs), helped drive this growth, according to CNBC.
Google's ability to make money from its Search business remains important to investors. Analysts at Wedbush said Google's shares are unlikely to recover until investors become more confident about the future of its Search business. They added that Google needs to introduce new advertising products and show that it can continue making money from Search as AI changes how people use the internet.
The future of online advertising will depend on how successfully both companies use AI. Meta is using AI to improve advertisement targeting and help businesses generate more sales, while Google is trying to protect its traditional Search business and expand AI-powered advertising. The competition will depend on whether these companies can turn their huge AI investments into sustainable revenue growth, CNBC reported.