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Retail Media Breakfast Club
AI Advertising Is Happening NOW: What Retailers Must Know Before It’s Too Late
00:10:41
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- [00:00]
A
The conventional wisdom says that AI advertising is a future problem, something to monitor, maybe something to experiment, but something that doesn't really demand immediate attention. But Debbie Aho Williamson would disagree. Debbie is the founder and chief analyst of Sonata Insights and publishes the AI Ad Economy newsletter on Substack. Before that, she spent 19 years at eMarketer and was one of the first analysts to identify social media as something that marketers should pay attention to, writing her very first report on it in 2006 when Facebook was just two years old. She now brings that same pattern recognition lens to AI's impact on advertising and commerce. Today I'm going to share some snippets from a conversation that she had with Scott Wingo on the Retail Gentic podcast, where they covered the ChatGPT ad rollout, the competitive AI advertising landscape, and what retailers are doing in response and where all of this is headed. Let's jump in. Highlight number one. This is not a test. ChatGPT launched its ad test about 30 days before this episode was recorded, and Debbie is realistic about what it actually is. Let's listen.
- [01:15]
B
This is a test that's leading towards something much bigger. ChatGPT is hiring for ad engineers, product managers, developers, people to lead the ad business. So this is not something that they're going into lightly or as an experiment to just kind of see if maybe advertising fits. This is definitely the start of where advertising might be going within ChatGPT. It is early, right? And I think that there's a lot of things that are going to change over the next couple of months as we start to see some results from these early tests. One thing that I know that ChatGPT and OpenAI have been leaning really heavily into is the idea of trust. And that means the ads are separate. The ads are clearly identified as ads. The ads don't impact what people see in the responses that they get. I mean, ChatGPT has been very, very careful in all of its framing around this launch just to make that very clear. It's important, right? I mean, you think about it. I mean, you don't want. You've built this sort of new economy, this new environment where people are going to get information.
- [02:40]
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She also noted that the current ad formats are deliberately basic. They look like search ads because that probably made it easier for advertisers to launch into the program and compare performance against existing search campaigns. Don't mistake simple for unambitious. This is scaffolding, not the finished building number two. 18 years versus 18 months. One of the most useful frames from this Conversation was Debbie's comparison between Amazon's ad trajectory and. And OpenAI's. Amazon existed as an online retailer for roughly 18 years before building an advertising business. ChatGPT, while not a retailer, got there in a fraction of the time.
- [03:26]
B
Amazon existed for a really long time before advertising. And now Amazon is one of the largest sellers of digital advertising in the world. Right? I mean, you've got Google, you've got Meta, of course, ahead of that. But if you look at Amazon, I mean, it's right up there, so it's been able to successfully build an advertising business and people are still using Amazon. People are not like going ads. Too many ads, maybe, maybe they're running away a little bit, but they're still using Amazon. ChatGPT obviously started incorporating advertising way sooner, Right? But to me, I mean, everything about AI is moving faster than it ever moved for Amazon back in the day. I mean, it made sense why Amazon took a long time to incorporate advertising because it was building a business in a different era than we are now. And so the advertising, the fact that OpenAI already has advertising, I think just tells you about the speed at which this transformation is taking place and how people are discovering, finding, researching, and eventually buying things. And, and I don't think OpenAI could afford to wait a year, two years, five years. They needed to move fast because they knew what they had built in terms of something that could, that would be valuable to people. And then I think they realized that this is also going to be a really valuable audience and environment for advertisers.
- [04:56]
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The speed comparison matters for retail media too. Debbie and Scott discuss how retailers are among the heaviest advertisers on ChatGPT. Sensor tower data showed roughly a quarter of early advertisers were in the retail category, including Target, Williams, Sonoma, Best Buy, and Albertsons. Debbie called this the frenemy conversation. Retailers want to learn from these platforms, but they're also afraid of being left out of the referral equation. Amazon and Walmart, meanwhile, have their own AI assistants that protect their existing retail media businesses. Which is why formats like Sponsored Prompts Inside Rufus and Sparky are getting attention as potentially AI native ad units. Miracle Ads is the ad tech solution trusted by rakuten and over 50 global enterprise retailers. That's because Miracle Ads was built with both three 3PMarketplace sellers and 1P suppliers in mind. Both advertiser audiences demand a seamless advertising journey from onboarding to reporting. You can offer everything from sponsored products to video ads all in one solution. Learn more@miracle.com that's M I R A K L.com number three. Ads aimed at agents, not humans. The conversation closed with Debbie looking ahead and this is where it gets interesting. For anyone thinking about where retail media and AI advertising converge, let's listen.
- [06:40]
B
I think that ChatGPT is not always going to be just like a basic little search box in the middle of the page. There's going to be different ways that you interact and engage with ChatGPT depending on what you're doing. You know, whether it's shopping, whether it's looking for entertainment, whether you're planning travel. They're going to be different interfaces. And that will open up the opportunity to have different types of ad formats more akin to the spectrum of ads that advertisers are used to. Video ads. I know ads look like social media ads, environments that are a little bit more social ads that lead to direct purchase opportunities. I feel like we're really just at the beginning stages of what advertising is going to look like. I expect there will be brand new formats that we have never heard of before that advertisers are going to have to get used to. We saw that with social media where companies like Facebook came out with ads that looked just like content in the feed. And you had to figure out, well, how do I as an advertiser show up among all of those feed posts that are in someone's social media feed? They did figure that out and it became hugely successful. So I feel like at AI we're going to see formats that we've never even comprehended before for. And then, you know, honestly, we talk. There's so much talk about agents and agentic commerce. And I think that is a shift we're going to see more and more development in over the next few months and into 2027. Buying the ability to have an agent go out and buy for you, to make a transaction for you is going to start to become more of a reality. And you know, not to get too, too futuristic, but it's going to lead to an environment where the advertising is not aimed at the human eyeballs or the human sensibilities at all, but is aimed at the agent and is designed to get the agent to perform an action. So it's not even going to look like advertising. We might start to see glimmers of that in the next year.
- [08:43]
A
Now that last point connects to something I've been covering closely. The Columbia and Yale research I wrote about last year showed AI agents already penalized sponsored products by 8 to 14% in selection probability today's. Agents have learned to avoid ads entirely. But if Debbie's right, and I think she might be, the next generation of AI advertising won't really look like ads at all. It'll be structured data, product feeds, trust signals designed to influence agent decision making rather than necessarily catching a human eye. Now what Debbie draws on nearly two decades of watching consumer behavior shifts turn into advertising economies. She tracks social media from a billion dollar ad category to the foundation of Meta's empire. Her rate on AI advertising is that we're in month one of a transformation that will play out over the next decade, and the pace that we're seeing just in these early few weeks makes social media's evolution look leisurely for retail media. Specifically, the question is about how retailers are going to react to this. We have retailers that are already testing these ad units on ChatGPT. We have retailers who are building their own apps inside the ChatGPT marketplace. We have retailers who are focused on the foundational work of building structured product data and thinking about how their on site ad economics might change. Maybe some of them are hoping that this is all a bad dream and just suddenly goes away. But it won't. We'll link up to Debbie's newsletter, the AI Ad Economy on Substack, and listen to the full conversation that Debbie and Scott had on the Retail Gentic podcast. Thanks for listening and I'll catch you next week.