Author: Zhuang Lijia, Zhitong Finance
Image source | Unsplash
Zhitong Finance App has learned that over the past 20 years, Google and Meta's Facebook have dominated the internet, converting the attention of billions of people into trillions of dollars in advertising revenue. The prosperity of the online advertising business and the huge profits it generated made these two tech giants among the most valuable companies in the world.
However, as the artificial intelligence (AI) era changes how consumers interact online, the advertising businesses of Google and Meta are moving in very different directions: AI is helping Meta improve ad delivery efficiency and expand monetization opportunities, but may be eroding the traditional search-advertising model on which Google depends.
Data shows Meta's Q3 advertising revenue grew 26% to $63.1 billion, up from $50.1 billion in the same period last year. By comparison, Google's search segment revenue grew 12% to $63.4 billion. That 14-percentage-point gap highlights the two companies' different fortunes in the AI era.
The performance confirms Meta CEO Mark Zuckerberg's earlier assessment that Meta's AI investment is providing brands with better targeting tools, helping advertisers achieve better results when running ads on Facebook and Instagram.
In fact, Meta's bet on AI was not achieved overnight. After Apple adjusted its iOS privacy policy in 2021, Meta's ability to target iPhone users was severely restricted. The following year, Meta's revenue declined for the first time in more than a decade.
At the end of 2022, OpenAI launched ChatGPT, ushering in a new era of generative AI technology. Although Meta initially struggled to find a stable AI strategy and lagged far behind competitors such as OpenAI in frontier model development, it has since fought back through its efforts in generative AI.
A year ago, Meta launched Meta AI for Business, which advertisers can connect to the Ads Manager system to help plan campaigns and improve performance. Meta CFO Susan Li said on last week's earnings call that the assistant has seen broad adoption among advertisers.
Susan Li cited syrup maker Simply Organic Maple as an example, saying the company saw purchases rise 57% and cost per purchase fall 36% after using the assistant. She added that nearly 1 million advertisers used Meta's generative AI ad tools in the third quarter.
As AI becomes increasingly embedded in ad delivery, Meta has also gained a key advantage: the time users spend on its platforms is itself a monetizable asset. Google, by contrast, faces the problem that chatbots are becoming an alternative to traditional search.
Nate Elliott, an analyst at Emarketer who researches the AI space, said: "It's a double-edged sword, because as AI fundamentally changes the way information is discovered, people may be exposed to tools that better fit their needs than Google."
Google, of course, is also actively using AI to improve its advertising business and trying to benefit from this technological shift. Google has room for AI applications across its ad products in various businesses, including YouTube.
Google's chief business officer Philipp Schindler said on the earnings call that the company is "deploying Gemini models across our entire advertising infrastructure," adding more tools for advertisers while improving ad quality.
Unlike Meta, however, AI is not just a tool for Google to improve ad efficiency — it is also directly reshaping its core search business. Google Search is now competing head-on with AI products such as ChatGPT through AI Overviews and AI Mode.
Google said search query volume hit an all-time high this quarter, but revenue growth is slowing. That means even as users still use Google Search heavily, AI-driven changes in how search works could alter how users interact with search results and ads.
UBS analysts wrote in a note after Google's earnings: "This will once again put concerns about erosion of the search business in the spotlight, and Meta's strong ad performance this quarter along with the ongoing threat from Muse and agents has further intensified them."
Against this backdrop, both companies are betting on AI on an unprecedented scale. Both are extremely optimistic about AI's potential and are pouring hundreds of billions of dollars into the infrastructure needed to build new models and services. Google expects capital expenditure of up to $200 billion or more this year.
Such massive capital spending is also beginning to raise investor concerns about returns. After Google posted disappointing third-quarter results last Wednesday, its stock suffered its worst single-day performance on record, plunging more than 12% and wiping out roughly $500 billion in market value.
Meta, however, is hardly Wall Street's darling right now either. Its shares fell 14% in October, the worst monthly performance since October 2022. That came after Meta's stock surged 27% in September, its best monthly performance since November of that year.
The investor reaction reflects market concerns about the two companies' huge AI spending. Such outlays have pushed both companies' free cash flow into negative territory, and the market is now full of questions about whether their historic spending on AI infrastructure can ultimately generate commensurate returns.
Meanwhile, both Meta and Google are actively seeking to diversify their revenue sources. Meta still relies on advertising for almost all of its revenue, so it is pouring money into AI models and agents to build a subscription business. Google, for its part, already has a large and fast-growing cloud business.
Looking at revenue structure, however, the two companies still differ markedly in their dependence on advertising. Google has gone further in diversifying — advertising now accounts for less than two-thirds of its total revenue — while Meta still depends on ads for 98% of its sales.
So while AI has brought new growth opportunities to both companies, its impact is not identical. For Meta, AI functions more as a tool to sharpen ad targeting, improve conversion efficiency and further monetize user time; for Google, AI represents more of a threat to its core search business.
This also means that the success of the two companies' AI strategies in the future depends not only on whether they can keep increasing AI infrastructure spending, but on whether they can effectively convert that spending into sustainable commercial revenue.
That said, Wedbush analysts believe the monetization of Google's search business remains key to its investment thesis. The firm's analysts wrote in a note last Thursday: "It will be hard for Google's stock to really strengthen until the narrative around the search business changes, and that may take time."
