In Depth: AI Is Taking Internet Advertising by Storm, but at What Cost? 

Artificial intelligence (AI) is revolutionizing the advertising industry, enabling the creation and delivery of advertisements with unprecedented efficiency. Major tech companies and online ad platforms, including Tencent, Alibaba, Baidu, ByteDance, and Kuaishou, are at the forefront of these advancements. They have developed AI models capable of generating vast quantities of ad content with a single click, optimizing both ad selection and distribution processes. [para. 1][para. 2]

Lee, a marketing product manager at a short video platform, highlights that AI-generated content (AIGC) has enhanced ad automation, allowing systems to identify optimal content and pair it with effective bidding and placement strategies. AI is being used to personalize ad content, tailoring it to individual users' needs, and enabling real-time strategy adjustments based on AI feedback. Shen Chengang, CEO of Meetsocial Group, predicts that AI will soon be able to generate personalized ads in real-time based on user interests and product characteristics. [para. 3][para. 4][para. 5][para. 6]

The slowing growth of China's internet user base, combined with tightened budgets, has pushed advertisers to maximize their return on investment. AIGC has significantly reduced ad production costs, with platforms like Kuaishou reporting a decrease in the cost of creating video ads from over 200 yuan to just 0.47 yuan. Consequently, China's internet advertising market has grown rapidly, expanding by 11.8% year-on-year in the first half of 2024, despite weakened consumer demand. Companies like Tencent and Kuaishou have reported increased ad revenue, driven by the adoption of AI advertising tools. [para. 7][para. 8][para. 9][para. 10]

ByteDance and Kuaishou have emerged as leaders in AI-driven advertising innovations. ByteDance's ad platform, Ocean Engine, uses AI to forecast user interests and generate ad scripts, while Kuaishou has introduced a text-to-image generation model, Kolors, to enhance its advertising and e-commerce segments. Nearly 20,000 merchants have adopted Kuaishou's AI capabilities for intelligent operations. Tencent has also focused on AI in advertising through its Hunyuan model, which improves understanding of consumer intent. Alibaba's Alimama platform uses generative AI to create and match ads with potential consumers. [para. 11][para. 12][para. 13][para. 14][para. 15][para. 16]

Despite the positive impact of AI on advertising, challenges persist. AI-driven advertising has not yet achieved profitability due to high research costs and unpredictable outcomes. Moreover, AI's reliance on common practices may lead to content homogenization, reducing creative diversity. Concerns about copyright and user privacy also loom large, with increased regulatory scrutiny in regions like Europe. [para. 17][para. 18][para. 21]

The rise of AIGC has implications for employment in the advertising industry. The number of registered advertising companies in China dropped in 2023, highlighting the potential impact of AI on jobs. While roles in editing and copywriting face potential replacement due to user-friendly content creation tools, demand for skills in data analysis is rising. In 2023, nearly half of advertisers had begun adopting AIGC technology, and this penetration rate grew substantially into 2024. Yet, a majority of advertisers believe AIGC cannot replace humans in making critical decisions. [para. 19][para. 20][para. 21][para. 23]

AI's integration into advertising is ongoing, with advancements continuing to unfold. While AI poses challenges, such as job displacement and concerns over creativity and privacy, it also offers opportunities for innovation and efficiency in reaching target audiences. [para. 22][para. 24]