Feb 17 (Reuters) – Microsoft (MSFT.O) has begun discussions with advertising agencies over how it plans to monetize its revamped generative artificial intelligence-powered search engine Bing as the tech company seeks dominance to be fought by Google.
At 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 responses to search results, said an advertising executive who spoke about the private meeting on condition of anonymity.
Generative AI, capable of producing original human-voiced responses to open-ended questions or requests, has been captivating the world lately. Last week, Microsoft and Google from Alphabet (GOOGL.O) announced new generative AI chatbots a day apart. These bots, which are not yet widely used, will be able to synthesize material on the web for complex search queries.
Initial search results and conversations with Microsoft’s Bing and Google’s chatbot called Bard have shown that 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 AI chatbot Bing’s more humane responses to drive more users to its search engine, and therefore more advertisers. Ads within the Bing chatbot can also enjoy 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 chief 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, it said the ad manager.
Microsoft declined to comment on the details of its plans.
Microsoft is also planning another ad format within the chatbot that will target advertisers in specific verticals. For example, if a user asks the new AI-powered Bing, “What are the best hotels in Mexico?” hotel ads might pop up, according to the ads manager.
Integrating ads with the Bing chatbot that can expand to fill the top of the search page could help prevent ads from being pushed further down the page below the chatbot.
Omnicom, a major ad group that works with brands like AT&T and Unilever, has told clients that search ads could generate less revenue in the short term if chatbots take the top spot on search pages without inserting ads, according to a note to clients last week published by Reuters has been verified.
The new Bing, which has a waiting list of millions of people to access it, 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 generate an additional $2 billion in advertising revenue.
Microsoft’s Edge web browser, which uses the Bing search engine, has a global market share of less than 5%, according to an estimate by web analytics firm StatCounter.
Michael Cohen, executive vice president of performance media at media agency Horizon Media, who received a demo from Bing at a separate meeting with Microsoft officials, said the company indicated that links at the bottom of Bing’s AI-generated search responses are places for ads could be .
“They seem keen to get started with integrated paid ads right away,” Cohen said, adding that Microsoft said more information about the strategy could come in early March.
When a Reuters reporter asked the new version of Bing with AI about the price of car air filters this week, Bing included advertisements for filters sold by auto parts website Parts Geek.
Parts Geek didn’t immediately respond to questions about whether it knew its ads were appearing on the new Bing chatbot.
When asked about the Parts Geek ads, Microsoft said it is just beginning to explore the potential of new AI technology in advertising and intends to work with its partners and the advertising industry.
Despite early testing, Microsoft hasn’t provided a timeline for when brands can 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 web, Omnicom said in its letter to customers.
“It’s no exaggeration to say that the announcements from[Microsoft and Google]signal the biggest shift in search in 20 years,” Omnicom said.
Reporting by Sheila Dang in Dallas and Jeffrey Dastin in Palo Alto; Adaptation by Kenneth Li and Anna Driver
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