Microsoft is introducing a new ads for chat API solution that enables publishers, apps and service providers to pick the ad formats they believe best support their native chat experiences. The tool can serve ads in both Microsoft-owned chat offerings, like the artificial intelligence-powered Bing, and also on outside platforms.

The rollout of the API is another sign that the tech firm wants to establish itself as a leader in a chat category that was fallow for years but has received a second wind with the integration of generative AI software that can create more lifelike conversations. Microsoft has gained an early lead in the sector and stoked renewed interest in its Bing search engine and Edge browser thanks to a partnership with ChatGPT developer OpenAI. 

The API announcement is just the latest in a steady trickle of news as the availability of the tech-enhanced products broadens, with AI-powered Bing moving from limited to open preview last week. As with previous developments related to its AI bets, Microsoft’s chat API is positioned to assure third parties like publishers that they will not lose out on what’s shaping up to be a lucrative field. 

“We really want to make sure that folks are able to get monetization rolling with the chat investments that they make,” said Kya Sainsbury-Carter, corporate vice president of Microsoft advertising, during a roundtable discussion with reporters last week. The executive, who has been with Microsoft for 17 years, stepped into the role in March following the departure of Rob Wilk for Snap. 

“We are learning a lot about how to integrate ads into a helpful, useful, organic flow,” added Sainsbury-Carter. 

A budding business

Microsoft building more ad products centered on AI comes as rivals, including Google, are under greater pressure to innovate after getting caught off guard by the fast emergence of the technology. Bing today has about 100 million daily active users, with many recent additions attracted by AI's possibilities. Consumers have engaged with half a billion chats since AI-powered Bing went live in February, and about one-third of users use chat daily.

Microsoft’s advertising business is still comparatively small, drawing about $18 billion in revenue last year across platforms including Bing, LinkedIn and its retail media network. Google’s search segment, on the other hand, generated over $40 billion in revenue in the first quarter of 2023 alone. However, Microsoft is not shy about touting its lofty AI ambitions.

“What might appear piecemeal is definitely not piecemeal. We are trying to bring together and build what we think about as a new monetization engine for the web,” said Sainsbury-Carter. 

“If you think about the industry and even the world at large, this moment in time with AI is the moment of our careers,” the executive added. “We're looking at it as big as the internet, as big as cloud.”

AI-powered Bing has run ads since its debut in a limited capacity. Messages appear when the user hovers over a text and in a visual, vertically-oriented format that Microsoft is working on expanding. The firm is in the process of bringing hotel ads live, with other category-specific offerings like travel and real estate on the way. With just a few months of testing, Sainsbury-Carter indicated the results have been positive, without breaking out specifics regarding performance. 

“We don't have a lot of ads in the chat just yet. We are definitely in learning mode. But where they are showing up, we are seeing that consumers are receptive and engaging,” the executive said. 

Beyond broad usage numbers, AI-powered Bing has led to changes in search habits that could interest advertisers and publishers investing in their own chat capabilities. Searches posed as questions are more popular, as are those focused on superlatives. The average query is also three times the length of traditional searches.

“There's a clear opportunity for more of [the query] to be addressable from a monetization perspective,” said Sainsbury-Carter. “It's the conversational nature and the context that is what's going to drive the ad.” 

Among these findings, Sainsbury-Carter noted the most “powerful” one for advertisers may be that the number of searches across a purchasing journey are going up, but the overall time of that journey is going down. 

“Essentially, we have a shorter average time to purchase that is made up of more information flow,” said the executive. “That's a super powerful outcome that we would expect to show great campaign improvements.”

What’s next for ads

Microsoft has held meetings with brands and agencies to hear what they want to see next on the product front. More visually rich and immersive experiences are some of the ideas that have been floated. For now, Microsoft is focused on getting the basics right, but the ads for chat API also demonstrates it wants to get fresh products out the door quickly. 

“Obviously, this is all still very much a learning moment and will be for some time,” said Sainsbury-Carter. “But our partners and publishers out in the ecosystem have been very definitive: ‘Let's learn together. Let's not wait until things are perfect.’”

As more people join AI-powered Bing with the shift to open preview, more advertising opportunities will arise, according to the executive. Asked about whether more ads could impact the user experience, Sainsbury-Carter suggested that it would be a good problem to have. 

“Increased ad load will really be based on commercially relevant queries,” said Sainsbury-Carter. “As they grow, which we expect will happen as usage grows, then the opportunity to place ads will grow. When we get to the point where we need to meter that, that will be exciting.”