With a projected $900B market opportunity, the AI industry is poised for significant growth, attracting both established tech giants and a wave of new startups.
The next big thing in technology will also be powered by advertising money. Google, Facebook, and Instagram ballooned in prominence and profitability by leveraging brand-building budgets from Tide laundry detergent to local plumbers. Even companies such as Netflix and Amazon, which until recently relied mainly on subscriptions, are getting in on the action. Artificial intelligence business models are also destined to take their fair share.
Many corporate breakthroughs ultimately depend on ads. At one point, newspapers courted retailers and car dealers and hired employers to cover two-thirds of their revenue. Radio was free to listeners because commercials footed the bills. Broadcast television, and then cable, leaned heavily on 30-second spots. Internet goliaths similarly leveraged sponsors big and small to power search and video streaming. Since its initial public offering in 2004, Google parent Alphabet’s top line has grown nearly 160 times to more than $300 billion in 2023. This is the reason that machine learning will follow a similar path.
The existing advertising market is already gigantic and still growing quickly. According to ad-space buyer GroupM, such spending worldwide increased nearly 50% from 2019 to 2023, exceeding $900 billion, and outpaced GDP growth by 20% over the same span. New small businesses were a big contributing factor. Companies ranging from high-profile Airbnb to lesser-known Chaakan Shoes use social media to reach customers.
It didn’t take long for digital services to devour incumbent media. In 2014, television accounted for more than one-third of the total amount spent on advertising or about $155 billion in sales. By 2024, GroupM estimates TV’s share of a bigger pie will have tumbled below 17%, equating to about $165 billion. Over the same decade, online channels grew their stake to 70% from 29%.
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Assume AI becomes a new category with roughly a fifth of the market by 2029, faster than the 15 years it took digital to claim 30%. Further, suppose that spending keeps growing on average at 9% a year instead of the slowdown to 6% projected by GroupM, partly because of pinpoint targeting by trained models that should make ads even more valuable. All told that would be a $900 billion pot up for grabs over the next five years, according to Breakingviews calculations.
Alphabet and Meta, the parent of Facebook and Instagram, will inevitably reclaim some of that money, alongside OpenAI’s ChatGPT and Microsoft. As typically happens, however, a new generation of startups will capitalize, too. The one constant is that all roads eventually lead to Madison Avenue.
