With the popularity of OpenAI and the beginning of the AI technology revolution, a new round of crazy technological upgrades and industrial restructuring is taking place in the Internet industry...
As we enter 2024, what are the development trends in the Internet industry? How will AI disrupt the Internet industry? According to Citigroup's report on December 20th, Generative Artificial Intelligence (GAI) will empower industry development, especially in vertical industries such as online advertising, e-commerce, and online travel. They have summarized the top ten Internet trends for 2024:
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1) Expansion of online advertising: GAI tools will drive the expansion of advertising budgets, and global online advertising revenue is expected to grow by 14% YoY. Advertising spending in industries such as automotive, consumer goods, and e-commerce will recover and the share of online advertising in the overall advertising budget will further increase.
2) The revolution of AI assistants: With more powerful basic models and large models, AI personal assistants will become popular in the B2B and B2C fields. 2024 will be a year of increased user stickiness and conversion rates for chatbot applications. The main players include early leaders like OpenAI, fast followers like Bard, and integrated personal assistants from Meta Platforms.
3) Increase in e-commerce market share: The share of e-commerce in the overall retail market in the United States will increase. It is expected that e-commerce revenue will grow by 9% YoY in 2024, and the retail penetration rate will reach 27% in 2028.
4) Exploration of new scenarios for ride-sharing and delivery services: The supply and demand in the ride-sharing and food delivery sectors have reached a balance, and companies are starting to explore new application scenarios to improve efficiency and advertising revenue, thereby enhancing profitability.
5) Improvement in online travel sales efficiency: The introduction of GAI tools will bring higher engagement and conversion rates, thereby improving sales and marketing efficiency and enhancing profitability.
6) Recovery in cloud service demand: Overall optimization of cloud services will continue, but GAI may drive the recovery of cloud service growth. Companies in the infrastructure, tools, and applications categories will benefit from this trend.
7) Rebound in the US online real estate market: The US online real estate market has withstood the impact of the macro economy, and it is expected that housing sales will rebound from the low point in 2023. Zillow will increase housing supply.
8) Normalization of online automotive supply: The supply of new cars in the United States is starting to normalize and gradually affecting the used car and wholesale supply.
9) Expansion of profits: After a year of cost reduction in 2023, the cost structure is expected to normalize next year. With continued efficiency improvements, profit margins will continue to expand.
10) Stricter regulatory scrutiny: Regulatory scrutiny in areas such as digital market laws, antitrust cases, and gig economy regulations in Europe will increase.
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In addition, Citigroup pointed out that the growth momentum of the entire Internet industry will continue next year, with further increase in profit margins. It is expected that profit margins will increase by 340 basis points YoY, revenue will increase by 12.5% YoY, and the balance sheet will also show stronger performance.
Citigroup expressed a preference for companies that invest in products, gain market share, and can achieve profit margin growth, with Meta Platforms, Amazon, and Uber being its top choices.
<h2>GAI drives advertising business expansion</h2>
Citigroup pointed out that GAI tools will drive the expansion of online advertising and improve ROAS (Return on Advertising Spend). It is expected that online advertising will grow by 14% YoY in 2024, with online advertising in the United States growing by 12% YoY, compared to a YoY growth rate of 9% in 2023. In addition, a stable macro environment will further release advertising budgets, and the advertising business will also benefit from the election and the Summer Olympics.
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Furthermore, Citigroup stated that industries such as automotive, consumer goods, and e-commerce will increase their advertising spending, and the share of online advertising in the overall advertising budget will rise.
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With the overall improvement in end-demand and increased user stickiness, industries such as automotive, consumer goods, e-commerce, and travel advertising will resume increasing their advertising spending, which will offset the pressure on platforms caused by lower CPM (cost per thousand impressions paid by advertisers).
Online advertising already accounts for over 70-75% of the overall advertising budget, and increasing user stickiness, new online ad formats (such as short videos), and improved ad effectiveness evaluation tools are driving overall conversion rate improvement.
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Citigroup stated that advertising innovation is the key to continuous improvement in online advertising performance, including innovative applications of GAI technology in the advertising field, and a greater focus on advertising placements in the purchase decision stage of advertising marketing, as well as strengthening the measurement and evaluation of ad effectiveness in order to better understand and optimize the impact and effectiveness of advertising campaigns. Specifically:
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AI-based automated ad management tools, such as Meta Platforms' Advantage+ and Google's Performance Max, can leverage GAI technology to improve ad content, targeting, personalized recommendations, etc. We expect Pinterest and Snap to also launch similar tools in 2024.
As of the third quarter, the majority of Meta Platforms' advertisers have used at least one AI-based ad product, and about 80% of Google advertisers have used at least one AI ad product. Surveys of media buyers and small and medium-sized enterprises show that the average adoption rates of Meta Platforms' Advantage+ and Google's PMax are 45% and 47% respectively, with 75% of media buyers hoping that GAI tools can save time.
Specifically, Citigroup believes that Meta Platforms is most likely to benefit from the continuously improving online advertising trends, followed by Pinterest, while Amazon's advertising revenue growth rate may reach 20% YoY:
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Meta Platforms has attracted more advertising budgets and is focused on advertising innovation, making it more likely to continue its market share growth trend. As for Google, it is expected to continue integrating GAI tools throughout its business, with Google's Gemini model providing a solid foundation for building updated GAI tools and services.
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Pinterest is our most popular online advertising choice among small and medium-sized enterprises, as its engagement in shopping and new verticals (such as travel, automotive, and finance) increases, while new ad units and the scale of its partnership with Amazon are also expanding.
In terms of Amazon's advertising business, it is expected to generate $56.2 billion in revenue in 2024, with a YoY growth rate of 20%, making it one of the fastest-growing advertising platforms.
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<h2>The AI Assistant Revolution is Coming</h2>
With the rise of large-scale pre-trained models and big models, as well as their popularity among consumers, 2024 could be the year of the AI assistant revolution, with increased user stickiness and conversion rates for chatbots.
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Citigroup states that, in other words, as foundational models and big models become more powerful, AI personal assistants will become more prevalent in both B2B and B2C:
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With advancements in models such as GPT-4 Turbo, Gemini, and Llama 2, OpenAI, Google, and Meta Platforms are becoming leaders in the field of chatbots.
From a broader perspective, these models can provide a search experience that is typically only available on search engines. We can imagine a scenario where almost every celebrity has an assistant trained in their image, and every small and medium-sized enterprise can provide personalized services, ultimately leading to increased user stickiness and conversion rates on websites.
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Citigroup summarizes some early development trends of AI assistants:
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OpenAI's OpenAI - Early Leader: As of early November 2023, OpenAI reported approximately 100 million weekly active users, with its core AI assistant being widely used and accepted by consumers, developers (over 2 million), and businesses (OpenAI has partnered with over 92% of the Fortune 500 companies).
This new approach to consumer search and interaction demonstrates a new way for consumers to search and interact with the internet, and shows the potential for broader interaction with the internet as a whole. This means that OpenAI is changing the way consumers search and interact with the internet, bringing a higher level of engagement and user experience.
Google's Bard: Bard has recently been updated to Google's latest base model, Gemini, and is currently available in over 230 countries and regions. According to SimilarWeb data, the monthly active user count has reached approximately 43 million. We believe that Bard is a key component of Google's strategy to build a more interactive search experience (and internet), and we expect to see more specific vertical applications, such as travel, healthcare, and education, by 2024. Although OpenAI currently has a larger market share than Bard, we believe that Bard and SGE (Search-Generated Experience) can at least maintain the current market share in the search market.
Meta Platforms' Integrated Personal Assistant: Meta Platforms recently launched Meta Platforms AI, which integrates 28 generative AI chatbots, such as Billie based on Kendall Jenner and Bru based on Tom Brady, as well as the developer platform AI Studio, which allows almost every celebrity and small and medium-sized enterprise to train an assistant similar to them.
We believe that there are multiple potential benefits here, including overall engagement and personalization improvement, new ad units based on click-to-message, and improved customer service for small and medium-sized enterprises, which may lead to increased conversion rates. In other words, we believe that Meta Platforms' integrated personal assistant has a positive impact on user stickiness and advertising.
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<h2>GAI as a Catalyst for Online Travel Growth</h2>
Citi believes that GAI could be a key theme in the online travel industry, and expects that new AI tools will bring higher engagement and conversion rates, thereby improving sales and marketing efficiency and profitability.
Although still in the early stages, 2023 has already shown the demand for the scaled deployment of GenAI tools. According to Citi, 33% of leisure travelers have started using GAI tools, with approximately 81% of travelers indicating that they are willing to book trips based on AI recommendations. Additionally, over 50% of loyal travelers stated that they would choose platforms based on GAI capabilities, indicating the potential impact of GenAI technology in attracting and guiding travelers.
Citi has listed some examples of GAI travel tools:
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Booking is developing two AI travel assistants, AI Trip Planner (a global travel planning application as shown in Figure 32) and Penny (which supports asking travel-related questions during checkout). Expedia has launched Project Explorer (a conversational travel planning tool supported by OpenAI), and Tripadvisor is developing a travel planning and itinerary feature that is currently in the testing phase.
Meanwhile, Airbnb CEO Chesky envisions a multimodal GAI interface that integrates text, images, and videos, indicating a more integrated and end-to-end GAI experience is gradually forming. We note that Airbnb has acquired Gameplanner.AI (whose co-founders previously developed Apple's Siri), suggesting that GAI may become an important component of the broader Airbnb experience throughout 2024.
In addition, Google is also directly applying SGE GAI tools to travel planning. However, it is worth noting that the functionality of GenAI is costly, and attention should be paid to its impact on profit margins.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/05dc5b2e-44ec-494d-94fc-8561ad63a32d.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/05dc5b2e-44ec-494d-94fc-8561ad63a32d.png"/>
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Furthermore, Citi points out that despite the focus on new trends driving bookings, the online travel industry as a whole remains healthy, with booking volumes expected to continue growing (highlighting greater demand) and an expected increase in direct traffic (entering the website directly without any referral), which could lead to improved profit margins and ongoing share repurchases.
According to Citi, Booking is the preferred choice in its online travel subsector, benefiting from its traffic growth, sales and marketing efficiency, potential in Connected Trip and payments, and its continued shareholder-friendly capital allocation practices.
<h2>AI Empowers Cloud Business Development</h2>
Citi notes that AI will continue to empower the development of cloud business, and overall, &#34;cloud optimization&#34; (optimization of resource allocation, performance tuning, cost control, and security enhancement) is expected to continue. However, GAI will bring demand &#34;tailwinds&#34; and incremental workloads (new business requirements or larger-scale data processing). As optimization weakens and enterprises benefit from incremental spending on updated GAI projects, cloud spending growth may moderately recover in 2024.
In this context, Citi believes that infrastructure, tools, and applications will benefit from this trend. Among them:
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For AWS, it has layouts in all three areas: infrastructure (Trainium and Inferentia chips), tools (Bedrock and Sagemaker), and applications (such as CodeWhisperer, Amazon Q, and Quicksight).
And its commitment to providing model selection and easy access to customers should accelerate growth.
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As for Google Cloud, optimization has led to a 5.5% decrease in cloud computing growth, with a YoY growth rate of 22.5%. This suggests that Google Cloud may still have several quarters of optimization headwinds above average levels, and it is expected that growth will continue to decelerate in each quarter. However, Google's next-generation foundational model, Gemini, can offset the headwinds of the next 24 years.
On the Microsoft side, Citigroup software analyst Tyler Radke predicts that Azure will benefit from ongoing GAI product innovation, considering collaborations with OpenAI and the launch of applications like Copilot.
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