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More than a year after the announcement of privacy-oriented changes to iOS 14 that reshaped the landscape for advertisers, platforms are working on new tools that make adjustments for the new digital marketing environment.
Few have more incentive to roll out fresh approaches than Meta. The Facebook and Instagram parent became the go-to platforms for brands looking to reach customers through performance marketing. In the wake of iOS 14’s full implementation over the second half of 2021, Meta said the changes would cost $10 billion in revenue in 2022. Factor in a pullback in spending due to macroeconomic headwinds and a dip in ecommerce demand, and the company reported its first-ever decline in ad revenue in the second quarter. Small businesses are seeing more pronounced impacts from the changes in 2022, and are pulling back marketing spending as customer acquisition costs go up, the Financial Times reported.
Facebook is seeking to answer all of this with new ad products. While recapping the most recent quarter, Meta leaders said they are focusing on developing AI tools that assist in advertising in response to the changes.
“Advances in AI enable us to deliver better-personalized ads while using less data,” Meta CEO Mark Zuckerburg told analysts on the July 27 earnings call. “So it powers automated messaging and creation tools to let businesses run better-performing campaigns, which is particularly important for small businesses that don't have big marketing departments and that have been hit hard by Apple's policy changes.”
This week brings news that new AI-powered tools for ecommerce and retail brands is set to arrive on Facebook this month.
Called Advantage+ Shopping Campaigns, Facebook said these tools eliminate many of the manual steps of creating campaigns, and automate up to 150 campaign combinations at once.
“We’ve found that 52% of consumers want to find brands and products they haven’t heard about, but align with their shopping preferences,” the company wrote in an announcement. “Through Advantage+ solutions, advertisers can tap into the power of AI to provide more relevant campaigns to the people who matter most to their businesses.”
Ecommerce and retail brands will get access on August 15. Small businesses will receive access, as well. The tool was previously announced earlier this year as Meta detailed its Advantage products, which include tools to expand the audience they can reach by taking advantage of opportunities identified in lookalike audiences and targeting preferences. Generally, the Advantage+ products are designed to allow advertisers to automate an entire campaign flow, or a key part of setup.
A screenshot of an Advantage+ Shopping campaign. (Photo via Meta)
On the earnings call, Meta leaders also detailed ads that send people who click on ads directly to a chat with the business doing the advertising. Zuckerberg said 40% of advertisers are using this click-to-messaging service.
“Click-to-Messaging ads is one of our fastest-growing ad formats,” said COO Sheryl Sandberg, a key architect of the company's advertising business who was on her final earnings call with the company before her announced departure on August 1. “It's already a multibillion-dollar business for us, growing at double digits.”
The ads benefit from creating an interaction between the consumer and a business.
“They help us move people from discovery to a direct relationship with a business,” Sandberg said. “In a world where we're trying to do more with less data, they give businesses and consumers a direct connection, so it's much easier to measure ROI. And so we're investing heavily.”
The company is also moving a focus on short-form video, including Reels. Executives were asked about how more ads would migrate to that product. Sandberg said creating new ad formats and measurements tools will be necessary, but there is also another layer required in helping small businesses to adopt video where they haven't in the past.
"Small businesses are better at static photos than they are at video. So this is a new format that we have to help them use. I think we have a number of tools that are working. We have a number of tools in development," Sandberg said. "But the idea is to help businesses really easily create those Reels ads, really easily test them so they can iterate and keep improving as we do this."
The solutions that help advertisers in the post-iOS 14 world may not only come from within Meta. Shopify, which saw direct-to-consumer brands flock to Facebook and Instagram advertising as an engine of growth in the last decade, rolled out its own tool called Audiences that helps brands create high purchase intent audiences, and export them to social networks for use as lookalike audiences. Platforms like Triple Whale and Northbeam are also stepping in to help solve attribution and measurement challenges presented by the iOS 14 changes, creating what Modern Retail called a "new battleground" in the ecommerce software world. And increasingly, brands are turning to a variety of other platforms like Amazon, Walmart, Google, TikTok and a growing number of retail media networks to find customers. Bringing things full circle, Apple itself is said to be building out advertising capabilities, including a demand side platform, as well.
It remains a phase of learning, as brands seek to figure out what works. But Meta’s latest release offers a sign that Facebook will continue to be a place to find new tools. Where the platform was once the first choice of many brands given its audience and data capabilities, they are now weighing a growing multitude of options.
At the same time, Meta isn't growing users at the same breakneck pace it once was. Facebook reported its first-ever decline in active users in the fourth quarter of 2021. Among teens, Facebook use plummeted from 72% in 2015 to 31% in 2022, Pew Research data found. That makes Meta's task all the more weighty.
Asked about how the company gained a sustainable competitive advantage, Zuckerberg said that building great infrastructure and emphasizing a culture that learns faster than others to stay ahead of competition is key.
“I'm confident that if we invest in building the new infrastructure that we need, then we're going to come out of this downturn with even more superior ad products and a meaningful technology advantage over other industry players,” Zuckerberg said.
Trending in Marketing
"Fashion ecommerce is one of the most cumbersome customer experiences that exists," said Rent the Runway CEO Jennifer Hyman.
The rise of generative AI is bringing with it a groundswell of interest and concern about how the capability to automatically synthesize information and create something new will change how we work.
Given that AI will sit within the architecture of our digital lives, it’s also worth considering how the technology will introduce new tools for other aspects of life, as well.
For two ecommerce innovators in the apparel space, it’s a time to explore how it will transform shopping. Rent the Runway is set to roll out new AI-powered search capabilities, while Stitch Fix is drawing on a long history with data science and machine learning to personalize the inventory buying process.
Here’s a look at the initiatives underway at each company, and their visions for the future:
Rent the Runway: From search to concierge
Rent the Runway is putting a focus on the customer experience this year as it seeks to retain more subscribers and continue a yearslong push toward profitability.
This is resulting in the introduction of a variety of new initiatives, from the addition of an extra item to all orders to speeding up page load times. Yet as CEO Jennifer Hyman zooms out, she sees change being necessary on an industry-wide level in fashion. Beyond adding new features, AI can play a transformational role.
“I think that fashion ecommerce is one of the most cumbersome customer experiences that exists. You are searching through pages and pages and pages of content to find the items that you like and no one likes doing this,” Hyman told analysts on the company’s earnings call this week. “As an industry that still is selling physical products, AI is going to be -- fashion is going to be a major beneficiary as an industry.”
As a rental service, Rent the Runway has a distinct niche in fashion that lends itself to AI’s advantages, Hyman said. As opposed to a retailer that a consumer may visit a couple of times a year, RTR is used frequently by customers. So Hyman said there are opportunities to turn Rent the Runway into a “utility” by creating a more seamless experience.
This frequent use also provides a “highly unique” dataset, Hyman said. They know what a customer is planning to do based on what they rented. They know whether she liked or disliked an item, and many customers are reviewing 10 items per month. They know her size and how an item fits. This can be put to work in tools that allow customers to ask questions, and find answers.
The first application that combines AI and these advantages will appear in the coming weeks, when Rent the Runway plans to launch a beta of AI-driven search. The tool will allow customers to search for common terms or use cases for an item. So a person will be able to write “Miami vibe,” “‘clambake in Nantucket,” or “tropical motifs,” and receive results about what to wear for such an occasion.
The goal is to help customers sift through the endless aisle, and instantly finds what's right for them.
“I think that across all fashion sites, all over the world, the way that people are searching for product is fairly vanilla, it's fairly functional, right?" Hyman said. "You can go to a site and search for a T-shirt, you can go to a site and search for a black-tie gown. The fact that we're going to be able to enable our customers to search how they actually want to use this closet in the cloud, to search for items to wear to my beach bonfire this weekend, that is a completely different way to search, and I think that it really brings out the value proposition of what a closet in the cloud is all about."
Hyman sees this as a first step in the company using AI models to improve the product experience, and expects more tools to appear in the coming months. RTR is also introducing an SMS concierge experience for onboarding that allows customers to text with a member of the customer service team. The company is already exploring ways that AI can be incorporated into that tool, as well.
In the longer term, Hyman said the company has a vision that will leverage AI to allow customers to communicate with Rent the Runway asynchronously across different modalities, and have a stylist that is constantly available to recommend items, pick out new inventory and answer questions.
“If we are utilizing AI appropriately over the next few years, I see no reason why someone even has to come to our website,” Hyman said.
Stitch Fix: Inventory buying and beyond
Stitch Fix has long married AI with human curation to provide outfits on a subscription basis.
“For years, we have utilized capabilities in generative AI, injecting scores and language into our personalization engines and, more recently, automatically generated product descriptions,” CEO Katrina Lake told analysts. “We have also developed and implemented more advanced proprietary tools such as outfit generation and personalized style recommendations that create a unique and exciting experience we believe is unmatched in the market.”
A new area where the company is applying AI is inventory buying.
“We have historically utilized a number of tools to make data-informed decisions with our inventory purchases,” Lake said. “Now, directly leveraging our personalization algorithms, we have developed a new tool that creates an exciting paradigm shift, which will utilize math scores at the client level to drive company-level buying actions. We expect the clarity of demand signals at the individual client level to drive more proactive and efficient inventory decisions as a company. And because of this, we expect to see higher success rates on fixes and drive increases in keep rates and [average order value] over time.”
Early results are promising. When compared with existing buying tools, testing showed a 10% lift in keep rate and AOV. By the end of this quarter, Stitch Fix expects 20% of all purchase orders to be algorithmically informed.
With experience using AI and a team in place to build, Stitch Fix is investing in the technology. Like Rent the Runway, it also has a unique dataset that offers an immediate advantage.
Here are Lake’s thoughts about how Stitch Fix’s AI strategy:
One of the things that I love about our experience is that we have generative AI that's really in more of a visual format. And so, the outfits that we have in our app, those are actually taking into account your preferences, what we know about you, and then in combination with what we know that you own in your closet. And to be able to kind of continue to push that technology and to be able to continue to give people more value in their experience with Stitch Fix, that's a really good example of, I think, a capability that is, firstly, really aligned with our capabilities around data and personalization and really unique to us.
And then I think it's also really compelling because I really think that pushes us as we think about what that addressable market is. I think if we can push outfits to be something that can be an asset to everybody, I think that is a universal thing that people would love to be able to have, is to have access to advice on a daily basis around what to wear and how to wear it.
While these are distinct companies, their plans lead us to a common conclusion: While the talk around generative AI might be new, many technology-forward companies already have assets sitting inside them that can be leveraged to build new tools. Uncover what’s already there, learn about the AI’s capabilities and develop a solution that's right for your organization. Then, talk to customers to determine how to improve it. It might mean commerce looks different, but that’s okay. The point is to create a better experience.