Adapting to AI: How Search Advertising is Evolving with Bing’s AI-Driven Strategies

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Google Aims at AI-Powered Search Advertising, Bing's Experience Offers Valuable Insights

For an extended period, Paula Thompson, who serves as the vice president of client strategy at the American digital advertising firm Optimal, has assisted Plunge in promoting their cold soaking baths through purchasing advertisements on Google search and Microsoft Bing. These advertisements are prominently displayed at the top of search results for terms like "ice bath," encouraging users to "Purchase our cold plunge now" or "Discover the unique benefits of the cold plunge."

Microsoft has given its search engine an artificial intelligence makeover, leading to a change in the advertising strategy for a bathtub manufacturer on Bing. According to Thompson, the company's ads now encourage users to explore the advantages of cold plunging or to discover the unique benefits of the Plunge brand. These ads now link to educational content instead of primarily driving traffic to pages where a purchase can be made, as was the case previously.

The introduction of search chatbots like Bing Copilot in the last year has ushered in new strategies affecting advertisers, who have historically supported the cost-free nature of search tools through their long-standing financial support. Recently, Google announced its plan to experiment with incorporating advertisements into its AI Overviews search functionality, a move that has led to a flurry of concern and research among advertisers keen to understand the impact of such changes. The implications of these developments are profound, given that the parent company of Google, Alphabet, reported profits of $74 billion in the previous year, and Microsoft reported profits of $83 billion, with a significant portion of these earnings likely stemming from their search advertising revenue, though the exact figures have not been disclosed.

There's no guarantee that businesses will successfully navigate the competing interests of advertisers and the preferences of users within the emerging AI search functionalities. Instances of irrelevant and possibly misleading advertisements in Bing's latest innovation have been reported by WIRED, an advertising purchaser, and social media users.

During a brief evaluation by WIRED, the advertisements displayed within Copilot seemed disjointed. Searching for information on ice baths resulted in advertisements for backpacks instead of Plunge or any competitor products. Inquiring about methods for losing weight led to promotions for belts that freeze fat, which did not match any of the AI-generated recommendations. This observation isn't isolated, as evidenced by a Reddit user's account last year, who noted encountering ads for nutritional supplements unrelated to a Copilot response regarding workplace burnout.

In a discussion with WIRED, Kya Sainsbury-Carter, the corporate vice president of Microsoft Advertising, expressed that advertisements are designed to be extremely pertinent, indicating that this is an aspect they intend to examine closely.

James Murray, who is in charge of senior product marketing for advertising, clarified in a subsequent email that it's typical for users to encounter advertisements for items they haven't mentioned in their interactions with Copilot. Usually, the advertisements that users see are linked to the keywords they type into the search function. However, according to Murray, the mechanism behind ads in Copilot works differently. Not only are these ads influenced by the search terms used, but they might also relate to questions posed by the user to the chatbot earlier, as well as to prompts automatically created by Microsoft to enhance Copilot's responses and even the content of the answers generated by the AI itself.

Microsoft strives not just for relevance in their advertisements but also for an element of chance discovery. For instance, if a user searches for "best ultra-HD, 8K QLED 80-inch TV," Microsoft intends to broaden their search by showing them ads for a slightly larger 85-inch TV or a model with an OLED display. Murray notes, "Users frequently click on advertisements for items they originally didn't search for, even after specifying very particular criteria." (This approach contrasts with Google's strategy, which focuses on ads that closely match the search query and AI-generated responses.)

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Advertising transparency has also emerged as a problem on Copilot, according to Microsoft's claims of labeling all advertisements. However, Marcus Pratt, the Senior Vice President of Insights and Technology at Mediasmith, an advertising purchasing firm, has reported experiencing at least two instances where the sponsorship of links was not clearly indicated or sufficiently apparent.

Recently, Pratt was searching online for the best options to organize and store his garden hose. He used Copilot, which suggested eight different reels. These recommendations seemed to be directly taken from a review article on Spruce, a site that reviews products and earns a commission through Amazon affiliate links when purchases are made. However, when Pratt followed the links for these reels on Copilot, he was redirected to giraffetools.com. The URL contained code indicating that these were sponsored links. The indication that it was an advertisement only became apparent when the user paused over the link before clicking. Attempts to get comments from both Spruce and Giraffe Tools were met with no response.

In another instance, Copilot suggested a pair of Nike Pegasus sneakers. However, upon hovering over the suggestion, Microsoft displayed a link to the On shoe brand, marked with a small "Ad" tag in the corner. Beneath the advertisement, there was a link to an article by Women's Health providing further information about the Nike shoes. Pratt describes this scenario as potentially disappointing for brands and perplexing for consumers. "The mix of natural suggestions and paid ads is making the lines fuzzier than before," he comments. Attempts to get comments from Nike, On, and Women's Health went unanswered.

According to Sainsbury-Carter from Microsoft, advertising experiences could differ as the company persists in experimenting and integrating suggestions.

Despite investors feeling optimistic about the tech giants' capacity to navigate challenges and sustain revenue, incorporating AI-generated content into search represents the most significant transformation in the industry since smartphones were introduced. Google is attempting to swiftly address users' inquiries by employing generative AI in AI Overviews to condense web content, a move that has faced criticism for notable mistakes, such as recommending that users put glue on pizza.

Microsoft is not only releasing comparable AI-generated summaries but is also allowing users to delve into subjects through interactions with Copilot, Bing's AI chatbot. While Google has experimented with placing advertisements in an early version of AI Overviews, Microsoft is leading the way by showing a higher number of ads and being more transparent about their approach.

During a recent online seminar exclusive to certain advertising firms, as reported by WIRED, a representative from Microsoft, Murray, revealed that the click-through rate for advertisements presented within Copilot significantly surpasses that of similar ads displayed at the top of conventional search outcomes, a spot traditionally known for receiving the highest number of clicks. Furthermore, there is a slight preference among users for a version of Copilot that includes advertisements over one that does not.

Sainsbury-Carter conveyed to her that, according to the data, users perceive Copilot advertisements as more essential rather than being in poor taste. She further noted that within the period from last July to the past January, the click-through rate for multimedia advertisements in Copilot was triple that of other areas on Bing. While the company opted not to disclose exact numbers, it highlighted that the findings were statistically meaningful.

Subscribing to AI-Driven Advertising

Advertisers are finding themselves with little option but to invest in AI-driven search advertising. Both Microsoft and Google are reallocating resources from advertisers' current campaigns across different platforms to populate the advertising spaces within Copilot and Overviews. This approach will continue until there's sufficient data to assess their impact. Consequently, Copilot has the capability to utilize advertisers' materials to display advertisements in various formats, including straightforward text, a series of product photos, sponsored links within AI-generated summaries, or interactive multimedia elements for making travel reservations or selecting a vehicle.

"At this point, we're hesitant to request that advertisers take on the responsibility of adopting, initiating, managing, and refining a completely new type of campaign," says Microsoft's Sainsbury-Carter. "However, this might change gradually if the divergence becomes significant enough to warrant such a move."

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Microsoft has experienced minimal backlash regarding AI-focused advertisements, with few advertisers asking to withdraw their ads or raising concerns about their ads being placed next to AI-generated content that is not accurate, according to Sainsbury-Carter. She also mentioned that Microsoft is very cautious regarding the volume of advertisements displayed in its new features, though she did not share exact numbers.

Microsoft and Google have yet to inform advertisers of the precise timing of their advertisements' appearances within AI functionalities, restricting their capacity to evaluate their effectiveness against conventional search advertisements. Moreover, these firms have not provided extensive guidance on how to tailor advertisements for these novel search capabilities, as reported by executives from four advertising agencies, Thompson included. According to Sainsbury-Carter, the primary advice given to advertisers is that general optimization for Bing advertisements suffices.

Thompson, who works for an agency that also handles marketing for Microsoft's Azure Cloud, has developed a unique approach to adaptation: She believes that rather than focusing on individuals actively searching for a particular item, marketing efforts should aim to inform those who are unfamiliar with the product altogether. This shift in strategy is due to observations that individuals frequently approach Copilot with general inquiries.

Plunge has shifted its advertising strategy on Bing from focusing solely on brief terms such as “cold plunge” to aiming at more detailed searches including “How to cold plunge,” “Where do I put cold plunge,” and “What is the optimal temperature for a cold plunge,” according to Thompson, who mentions the ideal temperature can be as chilly as 37 degrees Fahrenheit.

Thompson is of the opinion that her approach is effective, as evidenced by the increased number of clicks on her clients' advertisements on Bing. This uptick could also be attributed to Bing's user base expansion, which has risen from 100 million to 140 million daily users within the past year. Furthermore, Thompson feels somewhat reassured by Google's recent announcement at its major yearly marketing event, where it stated that its users perceive the ads in the latest formats to be less superficial. However, she believes that this information isn't entirely conclusive, noting, "There's still a lack of clear information," in her view.

Microsoft Sees AI as Key to Future Search Functionality

Microsoft strongly believes that Copilot is crucial for the evolution of search technology. Its aggressive marketing and seamless integration have played a significant role in the rapid growth of Bing searches utilizing Copilot, which have increased at a rate four times faster than conventional searches over the last year, as reported by the company. Although exact numbers were not disclosed, data from the latter half of the previous year indicates that users incorporating Copilot into their searches were able to find answers more efficiently, reducing their search time by 12 percent and experiencing a 30 percent rise in their clicks on advertisements.

This increases the demand for advertisers to refine their ads and for Microsoft's algorithms to accurately match them with relevant searches. Sainsbury-Carter mentions that during testing last year, approximately 80% of ad clicks within Copilot occurred in chat sessions that were shorter than a minute.

Businesses and shoppers should brace themselves, as advertisements are set to become more prevalent in AI-driven services. Snapchat, China's technology behemoth Baidu, and the German publication Bild have all agreed to implement Microsoft's technology for displaying advertisements through their chatbot interfaces. Snap's representative, Ahrim Nam, mentioned that their collaboration has moved beyond the initial trial stage, although they chose not to elaborate further. Baidu chose not to issue a statement, and Bild did not reply to inquiries for a comment.

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Microsoft collaborates with more than 1,500 publishing partners, indicating that as the integration of AI conversational features into applications and websites becomes more popular, we could see an increase in advertising across various chatbot platforms. However, it faces rivals in this emerging market. OpenAds, a startup based in New York City that has secured $1 million in investment, anticipates that its advertising solutions will be implemented across several AI-driven search chatbots and image creation tools shortly, according to its CEO, Steven Liss.

Liss embarked on the project of enhancing the service largely due to Google's current policy of not placing ads on websites and applications that primarily feature dynamic content, such as live chats, instant messaging, and auto-updating comments. Despite the possibility of Google revising its stance, Liss believes that OpenAds can outlast larger competitors by creating more captivating advertisements.

Currently, Microsoft holds the unique position of leading the market. However, the exact impact of Copilot and additional AI functionalities on Microsoft's annual advertising revenue of $18 billion remains ambiguous, with Sainsbury-Carter refraining from revealing the pricing for the newly introduced advertisements. She mentions, "We believe this could evolve into a fascinating venture over time, particularly if we're able to deliver personalized advertisements that are not only enjoyable and delightful for people but also extremely beneficial." This approach will also necessitate a deeper reliance on AI for handling search inquiries.

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