Feb 17 (Reuters) – Microsoft ( MSFT.O ) has begun discussing with ad agencies how it plans to monetize its revamped Bing search engine powered by generative artificial intelligence as the tech company tries to fight Google’s dominance.
In a meeting with a major advertising agency this week, Microsoft showed off a demo of the new Bing and said it plans to allow paid links in response to search results, said an advertising executive who spoke about the private meeting on condition of anonymity.
Generative AI, which can produce original answers with a human voice in response to open-ended questions or requests, has recently captivated the world. Last week, Microsoft and Alphabet’s ( GOOGL.O ) Google announced new generative AI chatbots a day apart. These robots, which have not yet been rolled out to users, will be able to synthesize material online for complex searches.
Early search results and conversations with Microsoft’s Bing and Google’s chatbot called Bard have shown they can be unpredictable. Alphabet lost $100 billion in market value the day it released a promotional video for Bard that showed the chatbot sharing inaccurate information.
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Microsoft expects that more human responses from the Bing AI chatbot will generate more users for the search function and thus more advertisers. Ads in the Bing chatbot can also have more prominence on the page compared to traditional search ads.
Microsoft is already testing ads in its early version of the Bing chatbot, which is available to a limited number of users, according to the ad manager and ads seen by Reuters this week.
The company said it takes traditional search ads, where brands pay to have their websites or products appear in search results for keywords related to their business, and inserts them into responses generated by the Bing chatbot, the ad executive said.
Microsoft declined to comment on the details of the plans.
Microsoft is also planning another ad format in the chatbot that will target advertisers in specific industries. For example, when a user asks the new AI-powered Bing “what are the best hotels in Mexico?”, hotel ads may pop up, according to the ad executive.
Integrating ads into the Bing chatbot, which can expand to fill the top of the search page, can help ensure that ads aren’t pushed further down the page below the chatbot.
Omnicom, a major ad group that works with brands such as AT&T and Unilever, has told clients that search ads could generate lower revenue in the short term if chatbots take up the top of search pages without including any ads, according to a note to clients last week, which was reviewed by Reuters.
The new Bing, which has a waiting list of millions of people for access, is a potentially lucrative opportunity for Microsoft. The company said during an investor and press presentation last week that every percentage point of market share it gains in the search advertising market could add an additional $2 billion in ad revenue.
Microsoft’s Edge browser, which uses the Bing search engine, has a market share of less than 5% worldwide, according to an estimate by web analytics firm StatCounter.
Michael Cohen, executive vice president of performance media at media agency Horizon Media, which received a demo of Bing during a separate meeting with Microsoft representatives, said the company indicated that links at the bottom of Bing’s AI-generated search results could be places for ads.
“They seem intent on starting immediately with paid ads integrated,” Cohen said, adding that Microsoft said more information about the strategy could come in early March.
This week, when a Reuters reporter asked the new version of Bing equipped with AI about the price of car air filters, Bing included advertisements for filters sold by the auto parts website Parts Geek.
Parts Geek did not immediately respond to questions about whether it was aware that its ads were appearing in the new Bing chatbot.
Microsoft, when asked about the Parts Geek ads, said the potential of the new AI technology in advertising is just beginning to be explored, and it aims to work with its partners and the advertising industry.
Despite the early tests, Microsoft hasn’t given a timeline for when brands will be able to buy ads directly in the chatbot, Cohen and the ad executive said.
In the long term, conversational AI is likely to become the dominant way consumers search the internet, Omnicom said in its letter to clients.
“It is not an exaggeration to say that (Microsoft and Google’s) announcements signal the biggest change for search in 20 years,” Omnicom said.
Reporting by Sheila Dang in Dallas and Jeffrey Dastin in Palo Alto; editing by Kenneth Li and Anna Driver
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