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Google and Facebook have dominated the internet for two decades, but the ChatGPT era is changing how people engage online and causing the two tech giants to diverge. In the third quarter, Meta’s ad business grew at more than twice the speed of Google’s search and other unit.
Meta’s AI-Powered Ad Growth
Meta’s ad revenue climbed 26% to $63.1 billion in the third quarter, up from $50.1 billion a year earlier. Chief Executive Officer Mark Zuckerberg noted that investments in artificial intelligence are providing better targeting tools for brands to promote goods and services on Facebook and Instagram. Users are also spending more time scrolling on Instagram, providing Meta with additional advertising opportunities.
According to US Top News and Analysis (cnbc.com), Meta needed artificial intelligence to recover from Apple’s 2021 iOS privacy changes, which limited user targeting on iPhones and caused Meta’s revenue to drop for the first time in its history. The launch of OpenAI’s ChatGPT in late 2022 pushed Meta to infuse AI into its advertising products.
A year ago, Meta introduced the Meta AI business assistant for its Ads Manager system. Meta Chief Financial Officer Susan Li stated on an earnings call that advertisers using the system’s recommendations achieved nearly 5% more conversions and increased advertising investment by 9% compared to non-adopters. For example, Simply Organic Maple reported a 57% increase in purchases and a 36% decrease in cost per purchase using the assistant, while nearly 10 million advertisers used at least one Meta AI tool in the third quarter.
Google Faces Search Cannibalization
Google’s search division saw 12% growth, bringing in $63.4 billion in the third quarter, resulting in a 14-point growth gap in Meta’s favor—the widest since 2021. Google’s search business faces pressure as chatbots like Anthropic’s Claude, OpenAI’s ChatGPT, and Meta’s Muse assistant become alternatives to traditional search, causing consumers to click fewer blue links.
“It’s a double-edged sword, because as AI revolutionizes discovery, people might come across tools they like better than Google,” Nate Elliott, an analyst covering AI at Emarketer, told US Top News and Analysis (cnbc.com) in an email. “If ChatGPT or Claude or Muse is better at helping them find what they’re looking for, people’s search habits might change for the first time in a generation. That’s potentially catastrophic for Google’s ad business.”
Google Chief Business Officer Philipp Schindler stated on an earnings call that the company is deploying Gemini models across its entire ads infrastructure to improve ad quality. However, Google’s search engine faces direct competition from AI Overviews and AI Mode, which provide summaries rather than external links. Although search queries reached a record high, revenue growth is slowing, sparking market fears of search cannibalization.
Market Impact and Revenue Diversification
Following its third-quarter earnings report on Wednesday, Alphabet shares plunged over 12%, wiping out about $500 billion in market cap. Meta stock fell 14% in October following a 27% surge in September. Investor anxiety stems from heavy spending on AI infrastructure, which has pushed both companies into negative free cash flow territory.
Both companies are investing heavily in AI infrastructure, with Google projecting up to $205 billion in capital expenditures this year and Meta expecting up to $145 billion. Google is further along in revenue diversification, with ads accounting for less than two-thirds of its revenue, driven by a cloud computing division that reported over 100% growth to $31 billion in quarterly revenue from infrastructure and tensor processing units. Meanwhile, Meta still relies on advertising for 98% of its sales.
