Mark Zuckerberg told investors generative artificial intelligence (AI) would be a bigger focus for Meta Platforms (META 1.54%) in 2023, and it's already starting to pay off.
Following the rollout of Apple's App Track Transparency on iOS, Meta shifted to rely more on AI to help target and measure ads. It also started creating AI-based tools to help generate ad creatives (an object that contains all the data for visually rendering the ad itself) that are more effective. The social media company recently released an update on its efforts to improve the results of marketers on Facebook and Instagram through the use of artificial intelligence.
It shouldn't be a big surprise that Meta's AI is producing great outcomes for advertisers willing to cede more control of their ad targeting, placement, and creatives. Meta's ability to generate better returns on ad spending than its rivals will help it win back share of the digital advertising market and return to revenue growth.
Here's what Meta's working on
Meta's AI efforts are of growing importance for the company.
The company recently reorganized to create a top-level team for artificial intelligence. The team will focus on implementing generative AI throughout its products. That includes consumer-facing products like Instagram lenses and business-facing products like its advertising platform.
Meta got a head start on the advertising business last year. It released the Meta Advantage+ suite of tools, which relies on AI to help marketers with creatives, placement, and targeting.
Meta says marketers using its Advantage+ shopping campaigns, launched last August, just need to set "their business objective, target country, advertising creative, and budget." The AI will optimize everything for them to maximize returns. And it's done pretty well. Advantage+ shopping campaigns produce a 32% increase in return on ad spend.
Meta says those AI-assisted ad campaigns are particularly useful in newer formats like Reels and Shop. That's good for advertisers, but it's even better for Meta as it works to bring Reels monetization up to par with Feed and Stories.
Meta also uses generative AI to help tweak ad creatives to improve performance. It says marketers using the Advantage+ creative standard enhancements saw a 14% improvement in incremental purchases per dollar spent on advertising.
There's still a lot of room to improve these systems. That's why Meta continues to plow tons of money and resources into developing better artificial intelligence systems. It expects capital expenditures to total between $30 billion and $33 billion this year, or about double its level of investment in 2020.
While investors have punished the stock based on management's decision to increase spending last year and this year, the efforts are now starting to pay off. Going forward, they could prove a considerable advantage for Meta.
Few others can compete with Meta's AI
Only a few companies can match the level of investment Meta is making in artificial intelligence. Those that can don't compete directly with Meta.
Importantly, Meta's building a significant competitive advantage. Smaller social media companies will be hard-pressed to keep up with Meta's ability to use AI to improve advertising campaigns. As Meta produces better results for marketers, ad budgets will move toward Facebook and Instagram and away from competing display advertising platforms.
That advantage won't be easy to overcome. Smaller competitors may have to partner with bigger tech companies, falling to the mercy of someone else in the space. Meta investors saw firsthand how reliance on any other company can suddenly produce a big negative impact on results after Apple rolled out App Tracking Transparency. Meta's setting itself up to control its own destiny while producing a new wave of improvements and innovations in digital advertising that are sure to bolster its revenue. That makes it one of the best ways to invest in the continued shift in advertising spend toward digital.
