With ChatGPT becoming popular all over the world, the AI technology revolution has kicked off, and a new round of crazy technological upgrading and industrial restructuring has been staged in the Internet industry.
Entering 2024, what are the development trends of the Internet industry?How will AI disrupt the Internet industry?Citi noted in its Dec. 20 report that generative AI (GAI) will empower the industryIn particular, vertical industries such as advertising, e-commerce and tourism have summarized the top ten Internet trends in 2024:
1) **Advertising Expansion:The GAI tool will drive the expansion of advertising budgets, and the global advertising revenue is expected to increase by 14% year-over-year. Advertising spending in industries such as automobiles, consumer goods, and e-commerce has returned to growth, and the share of advertising business in the overall advertising budget has further increased.In addition, Citi pointed out that the growth momentum of the entire Internet industry will continue next yearMargins are expected to grow further, with an expected year-over-year increase of 34%, revenue increased by 125%, and the balance sheet will also be stronger. Citi says it prefers companies that invest in products, gain market share and can grow their marginsIts top picks are Meta, Amazon, and Uber.2) The AI assistant revolution begins:As the basic model and large model become more powerful, AI personal assistants will be popularized in the B2B and B2C fields, and 2024 will be the year of increased user stickiness and conversion rate of chatbot applications. Key players include early leader ChatGPT, catch-up Bard, and Meta's integrated personal assistant.
3) Increase in the share of e-commerce businessThe U.S. e-commerce business will increase its share of the overall retail market, and it is expected that the revenue of e-commerce will increase by 9% year-on-year in '24, and the retail penetration rate will reach 27% in '28
4) Carpooling and delivery services open up new scenariosIn the field of carpooling and food delivery, the needs of users are basically balanced, and enterprises have begun to develop new application scenarios, so as to improve efficiency and advertising revenue, and the profitability of enterprises will also be enhanced.
5)**Tourism sales efficiency improvement:With the introduction of GAI tools, it will lead to higher engagement and conversion rates, which will increase sales and marketing efficiency and improve profitability.
6) Recovery of cloud business needs:Overall cloud business optimization will continue, but GAI may drive the recovery of cloud business growth, and three types of enterprises will benefit from this trend: infrastructure, tools, and applications.
7) **Real Estate** in the United States**: U.S. real estate withstands macroeconomic shocks, home sales are expected to rise from 2023 lows**, and Zillow will add homes**;
8) **Normalization** of automobiles:New cars** in the U.S. are starting to normalize and gradually affect used cars and wholesale**.
9) Profit Expansion:After a full year of cost reductions in 2023, it is expected that the cost structure will be more normalized next year, while margins will continue to expand as efficiency gains continue.
10) Stricter regulatory scrutiny:Regulatory scrutiny of the Digital Markets Act, antitrust cases, gig regulations in Europe, and more will grow.
Citi noted that GAI tools will drive ad expansion and improve ROAS (return on ad spend), with advertising expected to grow 14% year-over-year in 2024, with U.S. advertising up 12% year-over-year, compared to 9% year-over-year growth in 2023. In addition, the stable macro environment will also further free up advertising budgets, and the advertising business will also benefit from ** and the Summer Olympics.
Taking it a step further, Citi said that industries such as automobiles, consumer goods, and e-commerce will increase advertising spending, and the share of advertising business in the overall advertising budget will rise.
With the overall improvement in end-user demand and the rise in user stickiness, industries such as automotive, consumer goods, e-commerce and travel advertising will start to increase ad spend again, which will offset the pressure on platforms from lower CPMs (cost per thousand impressions paid by advertisers).Advertising already accounts for more than 70-75% of the overall advertising budget, and growing user stickiness, newer ad formats (e.g., short), and improved ad performance measurement tools are leading to an increase in overall conversion rates.
Citi said that advertising innovation is the key to the continuous improvement of advertising performanceThese include the innovative use of GAI technology in advertising, as well as a greater focus on advertising at the purchase decision-making stage, as well as enhanced measurement and evaluation of advertising effectiveness in order to better understand and optimize the impact and effectiveness of advertising campaigns. Specifically:
AI-based automated ad management tools, such as Meta's auto-generated ad system Advantage+ and Google's Performance Max, can leverage GAI technology to improve ad content, targeting, personalized recommendations, and more, and we expect similar tools to be launched by Pinterest and Snap in 2024.Specifically, Citi believes that Meta is most likely to benefit from the improving advertising trend, followed by Pinterest, while Amazon Ads revenue could grow by 20% year-over-yearAs of Q3, the majority of Meta's advertisers used at least one AI-based advertising product, while about 80% of Google advertisers used at least one AI advertising product. Surveys of buyers and SMEs show that the average adoption rates for Meta's Advantage+ and Google's Pmax are 45% and 47%, respectively, with 75% of buyers expecting the GAI tool to save time.
Meta is attracting more advertising budgets and focusing on advertising innovation, and the market share growth trend is more likely to continue. Google, on the other hand, expects to continue to integrate GAI tools throughout the business, and Google's Gemini model provides a solid underlying foundation for building newer GAI tools and services.Due to the rise of large-scale pre-trained models, large models, and their popularity among consumers, 2024 could be the year of the AI assistant revolution and increased chatbot user stickiness and conversion rates.
Pinterest is our most popular advertising choice among SMBs, as it sees increased engagement in shopping and new verticals such as travel, auto, and finance, as well as new ad units and partnerships with Amazon.
In terms of Amazon's advertising business, Amazon is expected to generate $56.2 billion in revenue in 2024, a year-on-year increase of 20%, and may be the fastest-growing advertising platform.
In other words, as base and large models become more powerful, AI personal assistants will become ubiquitous in both B2B and B2C, Citi said
Given the advancements in GPT-4 Turbo, Gemini, and Llama 2 models, OpenAI, Google, and Meta are emerging as leaders in chatbots.Citi summarizes some of the early trends in AI assistants:From a more macro perspective, these models can provide a search experience that is usually only available on search engines, and we can imagine a scenario where almost every celebrity has an assistant trained in their image, and every small and medium-sized business can offer personalized services, ultimately leading to an increase in user stickiness and conversion rates.
OpenAI's ChatGPT – Early Leader:As of early November 2023, ChatGPT reported about 100 million weekly active users, and its core AI assistant is being widely adopted and accepted by consumers, developers (more than 2 million people), and businesses (OpenAI already works with more than 92% of Fortune 500 companies).Citi believes GAI is likely to be a key theme in the travel industry, and it expects new AI tools to lead to higher engagement and conversion rates, leading to more sales and marketing efficiency, as well as improved profitability. Although it is still early days, 2023 has already shown the need to deploy GenAI tools at scale. According to Citi, 33% of leisure travelers have already started using GAI tools, with about 81% of travelers saying they are willing to book trips based on AI recommendations, while more than 50% of loyal travelers say they will choose a platform based on GAI capabilities, demonstrating the potential impact of GenAI technology in attracting and guiding travelers.This adoption and engagement shows a new way of consumer search and shows the potential for broader interaction with the web as a whole. This means that ChatGPT is changing the way consumers interact with search and the web, and is bringing a higher level of engagement and user experience.
Google's Bard:Bard was recently updated to Google's latest base model, Gemini, which is now available in more than 230 countries and territories, and has reached about 43 million monthly active users, according to SimilarWeb. We see bard as a key component of Google's strategy to build a more interactive search experience (and web) and expect more use cases in specific verticals in 2024, such as travel, healthcare, and education. While ChatGPT currently has a larger market share than Bard, we believe that BARD and SGE (Search Generative Experience) can at least maintain the current search market share.
Meta's integrated personal assistant:Meta's recent launch of Meta AI, which integrates 28 generative AI chatbots, such as Kendall Jenner's Billie and Tom Brady's Bru, and the launch of AI Studio, a developer platform, allows almost every celebrity and small and medium-sized business to train an assistant similar to theirs.
We see multiple potential benefits here, including an overall engagement and personalization boost, new click-based messaging ad units, and improved customer service for small and medium-sized businesses that could lead to an increase in conversions. In other words, we believe that Meta's collective assistant has had a positive impact on user stickiness and advertising.
Citi cites examples of relevant GAI travel tools:
Booking is developing two AI-powered travel assistants, AI Trip Planner (a global trip planning app shown in Figure 32 below) and Penny (which enables travel-related questions to be asked at checkout). Expedia has launched Project Explorer, a conversational trip planner powered by ChatGPT, and TripAdvisor is developing a trip planning and itinerary feature that is currently in beta.Taking it a step further, Citi noted that while more focused on the current new trends driving bookings, the travel industry remains healthy overall, with bookings continuing to grow (highlighting greater demand) and margins expected to improve given the more direct traffic that will be generated (no link directly in**, not something else**), which could lead to continued share buybacks. In Citi's view, Booking is the top choice in its travel sub-sector, driven by its traffic growth, sales and marketing efficiency, potential associated with Connected Trips and payments, and continued shareholder-friendly capital allocation practices.At the same time, Airbnb CEO Chesky envisions a multimodal GAI interface across text, images, and **, which gives us a sense that a more integrated, end-to-end GAI experience is emerging. We note that Airbnb has acquired GamePlannerAI (the company's co-founder previously developed Apple's Siri), suggests that GAI could become an important part of the broader Airbnb experience throughout 2024.
In addition, Google is also directly applying the SGE GAI tool in travel planning. However, it's worth noting that Genai's features are costly, and its impact on profit margins should be watched.
Citi pointed out that AI will continue to empower cloud business development, and overall "cloud optimization" (optimization of resource allocation, performance tuning, cost control, and security improvement) is expected to continue, but GAI will bring "tailwinds" of demand and incremental workloads (new business requirements or larger-scale data processing). And cloud spending growth is likely to recover modestly in 2024 as optimization wanes and enterprises benefit from incremental spending on newer GAI projects.
Against this backdrop, Citi believes that infrastructure, tools, and applications will benefit from this trend. Where:
For AWS,With a presence in all three, infrastructure (Trainium and Inferentia chips), tools (Bedrock and SageMaker) and applications (i.e., CodeWhisperer, Amazon Q, and QuickSight), as well as its commitment to providing customers with model choice and ease of access, should accelerate growth.As for Google Cloud,Optimization has led to a decline in cloud computing growth of about 55%, with a year-on-year growth rate of 225%, suggesting that Google Cloud may still have a few quarters of above-average optimization headwinds, and growth is expected to continue to decelerate in each of the following quarters, although Google's next-generation base model, Gemini, can offset 24 years of headwinds.
On the part of Microsoft,Citisoft analyst Tyler Radke expects Azure to benefit from continued GAI product innovation, given the partnership with OpenAI and the launch of applications such as Copilot.