Meta's ad biz booms with AI
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Each Meta employee, on average, accounted for more than $1 million in revenue in the first half of 2024, a company record.
Why it matters: Meta made steep cuts in late 2022 and early 2023, but they haven't impacted its business growth — thanks in large part to AI-driven improvements to the social media giant's recommendation system and ads platform.
Catch up quick: Apple's changes to its app-tracking policies in 2021 caught Meta so off-guard that it had to issue a rare update in between regular quarterly earnings reports to warn investors of the changes' impact on its business.
Yes, but: Fast forward three years, and Meta's business isn't just the biggest it's ever been — it's also the most efficient.
State of play: Despite new experiments like subscriptions and virtual reality hardware, the majority of Meta's business has always been, and will continue to be, advertising. (Advertising made up 98% of Meta's revenues in Q2 of this year.)
- Meta's ad business was primarily focused on the desktop until the smartphone became ubiquitous in 2014. Its mobile ad business has grown consistently, but faced a real threat in 2021 with Apple's privacy changes.
- Advertisers reliant on app data from Apple could no longer reliably use that data to target ads on Facebook.
That prompted Meta to build a suite of new AI-driven ad tools called Advantage+.
- Today, almost all of Meta's millions of advertising clients use at least one of the Advantage+ products, a spokesperson said.
- The Advantage+ AI tools help advertisers choose targets and optimize placement more easily and efficiently.
- A Meta-commissioned study of over 1 million U.S. advertisers, presented to clients in June, found that one dollar of investment per advertiser will now generate $3.71 in return for that advertisers' business, a 12% increase since 2022.
Between the lines: AI-driven content recommendations are also increasing users' engagement with the firm's products, driving more ad inventory.
- Ad impressions across delivered Meta's family of apps (Facebook, Instagram, Messenger, WhatsApp and Threads) increased by 10% year-over-year during the second quarter of 2024. The average price per ad, which is driven by demand, increased by 10% year-over-year.
- More than 50% of the content people see on Instagram is recommended by AI, the company announced in April. (Reels alone makes up around 50% of time spent on Instagram.)
- Meta chief financial officer Susan Li said on Meta's most recent earnings call that the company is starting to test a feature that allows businesses to use AI in their chats with customers to help sell their goods and services and to generate leads.
The bottom line: Meta's business might never have recovered from Apple's 2021 changes and 2022's advertising industry slowdown if it hadn't rebuilt its recommendation engine and ad platform around AI tools.
What's next: Meta's next big investment will be developing genAI products that allow advertisers to make and test many new iterations of ads' creative content.
- "Over the long term, advertisers will basically just be able to tell us a business objective and a budget, and we're going to go do the rest for them. We're going to get there incrementally over time, but I think this is going to be a very big deal," CEO Mark Zuckerberg told investors in July.
