First there was ChatGPT – the disruptive AI chatbot made by OpenAI (Chat Generative Pre-Trained Transformer) and now there are searches powered by AI (artificial intelligence) which could bring a revolution in digital advertising as well as spell the end of bog-standard online enquiries.

REINVENTING SEARCH

In early February 2023, Microsoft (MSFT:NASDAQ) and OpenAI introduced AI-powered Bing and Microsoft Edge, aiming to ‘reinvent search’ and take the market share from Google-owner Alphabet (GOOG:NASDAQ).

By answering complex queries on the fly and acting as a user’s ‘co-pilot’ for the web, AI has the potential to increase user time spent on the search engine home page and reduce click-through rates (CTRs) to websites, ultimately leading to lower traffic, creating a headwind for advertising and affiliate revenue models, according to recent research by Berenberg. Affiliate marketing is a process where publishers earn a commission by promoting a product or service made by another retailer or advertiser using an affiliate link.

In summary as giant tech companies like Microsoft, Google, Meta Platforms (META:NASDAQ), Amazon (AMZN:NASDAQ) and Apple (AAPL:NASDAQ) develop AI-powered search this will having a knock-on effect not only for the consumer, but media publishers. Even if, for now, the full effects are still uncertain and some way off.

MEDIA BROWSER WAR

Microsoft seems to be winning the early skirmishes against Alphabet in AI-linked search. At the launch event for Google’s ChatGPT competitor Bard on 8 February more than $100 billion was wiped off Alphabet’s market value after it flagged incorrect information about the James Webb Space Telescope.

In contrast, on 16 March, Microsoft launched its AI office co-pilot for Microsoft 365, which includes Word, Excel, PowerPoint, Teams, and Outlook.

AI will offer a draft in these applications ‘speeding up content creation and freeing up workers’ time,’ the tech giant said. Microsoft shares reacted positively to the news on that day rising 4% to $276.20.

In terms of names exposed to AI search – Microsoft, Alphabet, Amazon (which has already incorporated several AI-powered features into its Amazon Web Services business) or Apple. The consumer electronics giant has bought many private AI companies over the past three years, these investments could augment several of their products and services, such as Siri, facial recognition, and possibly augmented/virtual reality, says Morningstar strategist Abhinav Davuluri.

In terms of the businesses which are likely to be impacted by the development of AI-driven online searches, LADbible owner LBG Media (LBG:AIM) and financial services comparison website Moneysupermarket (MONY) are relatively insulated from negative impacts according to Berenberg. The investment bank notes LBG Media ‘will escape the headwinds of AI-powered search due to its focus on social and video’.

LBG has in total 168 million followers across all its brands’ websites and social media channels. In 2018, LBG entered into an agreement in 2018 to share revenue from in-video advertising within Facebook.

In Berenberg’s view, online marketing specialist CentralNic (CNIC:AIM) is ‘not only protected from the core risks posed by Search 2.0’ but ‘may even benefit from the disruption to other digital advertising models’.

For publisher Future (FUTR), the acceleration of AI-powered search could be significant. Future generates 63% of its online traffic from organic search and 35% of group sales stem from B2C (business to consumer) advertising and affiliate revenue.

REDUCING EDITORIAL COSTS

One potential use for AI for publishers will be to reduce editorial costs and make their business models more cost efficient.

The use of AI to write editorial content is probably more relevant for generalist publishers that focus on ‘soft news’ summaries (for example, traffic, weather, gossip, etc) and the creation of personalised content for audiences (for example quizzes, personalised stories), rather than hard-news journalism or specialist publishers whose entire value proposition is to be an authoritative voice on a subject or vertical.

Berenberg says: ‘We do believe there is scope for AI to help with the cost, time-to-market, and optimisation of ad creative development.’

BuzzFeed said it would rely on ChatGPT to enhance its quizzes and personalise some content for its audiences.

London-listed regional publisher Reach (RCH) with brands such as the Daily Express, Daily Mirror, and Liverpool Echo, is also exploring how AI can support its editorial teams.

In an interview with the Financial Times, Reach CEO Jim Mullen said that the company had ‘tasked a working group, across our tech and editorial teams, to explore the potential and limitations of machine-learning such as ChatGPT,’ adding ‘we can see potential to use it in the future to support our journalists for more routine stories like local traffic and weather or to find creative uses for it, outside of our traditional content areas’.

IRONING OUT THE FLAWS

There may be drawbacks to using AI-powered search for the consumer in terms of accuracy. For now AI-powered search can throw up random results and AI-writing might be awkward, stilted and not make sense. This may be because AI-powered search is in its initial stages.

Morningstar senior equity analyst Dan Romanoff says that while products like Bard AI and ChatGPT are a more advanced version of AI than the public is used to, it’s not too different from the basic forms of AI consumers have been able to interact with over the past decade, such as Siri or Alexa, or even just basic search engines.

‹ Previous2023-03-23Next ›