Ian Whittaker
May 21, 2023

When it comes to AI it's best to keep your head, not lose it

The best thing to do for now is to ignore the market reactions and take on board Napoleon’s comment: 'Take time to deliberate, but when the time for action comes, stop thinking and go in.'

When it comes to AI it's best to keep your head, not lose it

The markets have got one of their bouts of panic on structural matters affecting media and tech, and this time it is artificial intelligence.

This was powerfully highlighted recently when educational services provider Chegg's share price nearly halved after it admitted in its Q1 results that students had started to use AI — and not Chegg’s own products — to meet their needs.

While Chegg waxed about how AI would be ultimately beneficial to their business, the markets were obviously not convinced and other names that were seen at risk (for example, educational company Pearson and professional publisher Relx) saw their prices hammered.

Meanwhile, the investment banking community – never slow at spotting an opportunity for business – rushed out their own views of what sectors in media and tech would be most impacted by the rise of AI.

Of course this was not an entirely new issue. Back in February, Alphabet (aka Google) had more than $100 billion wiped off its market capitalisation in two days after an AI presentation included some basic errors (in China, Baidu suffered a similar sell-off after a similar issue in its presentation).

The markets whipped themselves into a frenzy that Microsoft’s Bing product – along with sub-10% market share globally ex-China – would threaten Google’s natural dominance through the use of AI.

You may realise by my use of language that I am not entirely convinced by AI’s potential to disrupt many business models. We will get onto that in a moment.

However, there is no doubt that the conversation will soon turn to the impact of AI on the agency sector. In fact, it already has with some analysts speculating agencies will be among the most affected sub-sectors.

How should agency groups respond?

The first thing to do is not to panic. There is an argument that Chegg, which provides students with tips on how to write essays, answers on exam questions etc, is a unique example, given its business model (and what students are using it for).

However, instead of taking a deep breath, several companies rushed to organise analyst and investors conference calls, telling the markets – not always convincingly – that AI would ultimately be beneficial.

Yet there is no need to do this. The markets are fickle. Management teams should bear in mind that the share price reactions reflect more investors’ lack of knowledge about AI and a strong fear factor than anything else.

Alphabet’s share price is instructive in that regard: it has recovered all of its losses from the demonstration debacle as investor interest shifted to more mundane matters such as company results.

This is particularly key as companies can make not only rash promises but also bad strategic mistakes when they react prematurely and do not think through things strategically.

One high-profile example of this is streaming. Netflix’s rise, as well as some signs of pressure on the traditional US pay-TV model, persuaded the existing media conglomerates to plunge into the SVOD model.

As a result, not only has each of these companies recorded staggeringly high losses (Comcast’s Peacock streaming service, for example, is guided to lose $3 billion in 2023) as well as growing investor scepticism over their long-term success but, structurally, they ditched business models that worked very well for them and that, arguably, could have been reformed without the pain of going all out D2C.

Nevertheless, could AI pose a risk for agencies and should they respond now?

Most of the discussion seems to be around either creative work being created by AI and therefore either being good for agency models (fewer staff) or bad (clients do their own work).

There is then the argument that AI could “efficiently” choose the right media, without the need for planners to optimise customer targeting.

A case could be made for most of the industry being affected. Will that happen?

That would take up an article in itself (the short answer is probably not) but it is worth pointing out that technology very rarely develops in the way that people expect it at the time and that is likely to be the case here.

So managements have no need to rush in now and risk making mistakes that will haunt them in years to come. The best thing to do for now is to ignore the market reactions and take on board Napoleon’s comment: “Take time to deliberate, but when the time for action comes, stop thinking and go in.”

Now is very much the time for thinking, not doing. If, or when, that comes, those companies that have prepared properly will be best placed.

As usual, this is not investment advice.


Ian Whittaker is founder and managing director of Liberty Sky Advisors. He writes a regular column for Campaign about the advertising landscape from a financial standpoint. It is is not investment advice.

For further insights and articles, subscribe here.

Source:
Campaign UK

Related Articles

Just Published

3 hours ago

Anti-fraud programmes ‘saved US advertisers $10.8 ...

Resulting in a 92% reduction in potential adspend losses, US advertisers were saved billions of ad dollars courtesy of industry-wide action tackling bad actors and fraudsters.

3 hours ago

Top 10 brands a decade on: How Disney and Samsung ...

The behaviour of once iconic brands like Boeing and Volkswagen, ranked highly in 2014 have now dropped out of the new FutureBrand Index. But what is the secret to modern brand success?

2 days ago

Uber India’s Shroff duo campaign: Throwback vibes ...

Fuel Content produced the ad films, while FCB India was the creative agency for the campaign.

2 days ago

McDonald’s Singapore rallies youth to embrace ...

Launched on World Mental Health Day, the 'Lovin' Me' initiative aims to support youth mental wellness through music, podcasts, and resources, tackling the growing challenges of emotional well-being among young people.