The Rise of AI in Advertising

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0:56hello and welcome to another episode of the duct tape marketing podcast this is john chance and my guest today is mike rhodes with over two decades in the digital marketing industry he's established his award-winning melbourne-based digital agency web savvy back in 2006 with the purpose of helping small businesses grow. The agency is a Google Premier partner and only one of a handful of Australian agencies to be part of Google's international growth program. Mike also co-authored The Ultimate Guide to Google Ads now in its sixth edition. Google keeps changing things, got to keep updating the book, the world's bestselling book on Google Ads with over 130 ,000 copies sold to date.

1:45So Mike, welcome to the show. John, absolute pleasure to be here. Thank you for having me. So Google's really essentially kept you in business, haven't they? Just by making changes. They've kept us all in business, haven't they? Like every time they change something, we become more important to the world out there, don't we? I hitched my wagon to the right ride way back when I didn't choose Yahoo and Overture. I was going to say that the ultimate guide to Overture just would not have sold as many. So this is a really big question. Okay, maybe I'll say maybe I'll boil it down to like the last two years rather than saying, you know, the 20 some years you've been doing this.

2:23What in the last couple years have you seen are the biggest changes? Let's just throw it out digital marketing, you can go anywhere you want with that. Oh, boy. Okay. So on the Google side, at least, they are continuing this sort of march towards the ultimate black box. I think the way Google would love it is give us your credit card and maybe a feed out of your accounting system on the other side. And we'll just do everything in the middle and we'll figure it all out. Just stand over there and never leave, right? Little humans out of the way, please. We've got this. We'll just spend your money for you, which kind of sounds ridiculous, but we're kind of heading in that direction.

2:59Almost a couple of years ago, that was sort of another big change in this direction. Google launched this thing called performance max, which is the latest in the sort of black box. If you're cynical, you might call it inventory max. It's a way of Google selling a lot of inventory. Your ad will appear on, yeah, basically all over Google, seven different channels. And Facebook have since come out with their sort of version of this. And marketers are a little bit upset, but yeah, we just, we crack on. We don't really miss control. We've none of us want to go back to fiddling around with bids three days a week, but we do miss the ability to have insights.

3:38And so the more and more we head down this road towards the platform being a black box, I see two huge changes for marketers. My mental model is creative platform data. And as the importance of platform in the middle starts to shrink, the importance of creative and data rise massively. Businesses really only care about creative a lot of the time. We as marketers understand that data is incredibly important because we are marketing first to the machine, because if we can't convince the machine to show our ad, the human never gets to see it. So data is so, so important. And that obviously has led into this sort of AI world, which I'm sure we'll talk about as well.

4:20Well, nobody else is talking about it, so we might as well, right? And I haven't seen anything about it on LinkedIn recently. Yeah, I caught you right, you were taking a drink there. You about to spit it out. All right. So let's dive right into, you mentioned creative, you know, that's certainly an area where AI is changing advertising. I, you know, I know from a testing standpoint, it's pretty easy to spin up 200 ads now or 200 headlines now using AI. There's actually even some tools, especially as we go to the next generation of AI, that'll produce videos and produce, you know, images or full, you know, on ad creative.

4:55So what do you see as kind of the near term future of using AI in advertising? Yes, crazy, isn't it? I remember standing on stage in San Diego about five, six years ago, I was explaining how AI works because I got into it really early. Kind of runaway screaming, thinking businesses aren't really ready for this, everyone needs to focus on automation. But I remember saying, bidding, well, that's just a maths game. So computers have won that. Targeting, yeah, at the moment it's 50-50, but machines will win. Messaging, ah, that's the bit you should focus on. You should go and be a persuasive copywriter, then you'll be safe.

5:27I was completely wrong. ChatGPT has obviously changed that massively. And we've got to remember, it's only been four or five months. We were playing with GPT back when it was version two and then version three about three years ago. But this just a new interface just grabbed everybody's attention. 100 billion users in two months. And here we are now. Textor video, as you say, is not that far away. Textor image has blown everybody's minds. And it's less than a year since Dali came out. Where do we go? Yes. We will be sitting here in a year or two saying, hey, machine, I need six videos for YouTube, three for TikTok.

6:06Oh, go give me one for something else as well. No, not like that. A bit more like this. Shorter, bigger. It's quite phenomenal where we're at. It's tried to say, but it does change everything. Well, and you know, there's still people that are saying, oh yeah, but they can't write headlines as good as a really good copywriter. But what my contention is a lot of times I'll throw six headlines out there. I'm like, that is the best one. Well, that's not what the market's held me, right? Nobody can predict. I think what a lot of people have done is that they try and make it an either or thing. and the way we use it for images makes it much clearer and then you take that approach to text yes priming is important yes the prompt is important and yes people are going to call themselves prompt engineers but it's playing with the machine the back and forth the iteration that really if you go and find a time-lapse video on youtube of a really good artist playing with something like mid-journey and what they come up with over the course of half an hour it's not about the perfect prompt gets you this incredible thing it's that interplay is machines are going to augment us they already do i mean i have no idea what's on my calendar unless i look at google calendar i can't read a thing without these anymore well and we've been you know we've been using google maps for how long well you know absolutely in the early days people used to drive up the end of the pier you know because they were blindly following that so use it at your own risk don't blindly follow it and you'll be okay yeah yeah yeah and you know one of the things I think what you just alluded to there was design, creative design has always been an iterative process.

7:46I mean, if you watched, you know, any designer, you know, they're doing that anyway. But now what we're getting now is we're just getting efficiencies and speed, and we're now able to have 200 variations. That's a really good point. I read there's a wonderful book called Creative by the president of Pixar. And we all think that an amazing movie like Toy Story just gets born and just comes into the world one day that goes through multiple multiple iterations that the wonderful movie up you know the house with all the balloons and the dog that entire movie was rewritten five times and then brought into the geniuses at pixar and absolutely flayed and taken apart and put back together it's always been that iterative process and if you treat the ai like a pretty good intern who can come up with an unlimited number of ideas and a great first draft.

8:36I used it yesterday to write a sales page, the video script for the sales page, five different hooks for ads, then to write the ad, then to ask the questions for the application process on the back of the sales page. It was phenomenal. Four and a half thousand words took me an hour and I now have everything I need for the whole marketing plan. It's just crazy, but it's here. So let's throw a couple more terms out there before we talk more about AI. Where does programmatic advertising, geofencing, you know, some of those kind of, I don't know, are they niche areas or subsets of advertising? You know, where do those fit today?

9:12Or maybe just briefly even describe kind of your relationship with both of those. It's funny. We have people sort of mention programmatic to us quite often. Oh, should we be doing programmatic? And we always tell them, well, you are. Google is programmatic. Facebook is programmatic. It's just there's sort of a corner of the advertising world where a group of people have decided, well, we can charge a lot for CPMs if we kind of obfuscate some things and we make this seem much harder than it is. Google Display Network is problematic. And yes, there's some differences, but ultimately a machine is making all of these decisions.

9:47So I think that as long as the business gets the data that they need back to inform them and to have the insights and there is enough transparency where they can do that, then it doesn't really matter what medium that business uses. I mean, as long as they're using something that's right for them, for their particular need. If you're highly visual product and a female audience, then Pinterest might be worth a crack. If you need to say something through video, then maybe it's Reels, maybe it's YouTube Shorts. There's an unlimited amount. You've got to test a lot of stuff. You go where your audience is.

10:23The problem now is that your audience is everywhere and they're on 20 different channels and most businesses can't do 20 different channels. So you pick one, you master one and then you move to a second. Yeah. One well instead of five poorly. Yes. Yes. So I mentioned another kind of trendy term, geofencing. Does that have a place for certain businesses? Is it too creepy? I think we all know the stats at this point. Google know more about us than our spouse does. So it knows where you are, where you normally are, what device you're on, what the weather is. They've tested if the phase of the moon had an impact.

10:59It didn't, but they tested it. So what else might they have tested? So I think of geofencing as just where is your audience? Rather than we don't do that sort of crazy stuff of like only show an ad when they walk past the door of my store and then show them this ad and then to do that. I don't know how effective that is. And in the world we're going into where more of that data is hidden because of privacy reasons, I think maybe it's had its day in the sun and we'll have to find new and more creative ways. And I'm sure we all will. This is a, I wouldn't say it's a hot topic. It is a debated topic amongst a lot of folks like yourself.

11:36you know is there a place for what people might refer to as brand advertising or you know long sales cycle trust building type of advertising as opposed to you know how do I get today's dollars how do you I mean are you on the side of you need both are you on the side of one is hard to really you know justify or where do you fall on the need for kind of long-term advertising and short-term advertising if we want to call it that way we're going to need a bigger boat haven't we I was on stage last week at a conference with my head of strategy, Trevor Hensel, a great guy. And he talked about this exactly.

12:11And he had two quotes, both from the same guy, Avinash Kaushink, who for many years was Google's digital evangelist. And the quote was something along the lines of, it's impossible to think of a business that has only done performance marketing for 25 years and been a huge success. And then the next slide was, it's impossible to think of a company that's only done brand marketing for 25 years and be a huge success. I think most businesses need to do both. However, if you're a relatively small business, let's say sub 20 mil, then you're going to spend the majority of your budget on performance.

12:48And you absolutely should be spending something on awareness. Yes, it's going to be harder to measure. Yes, you can't really draw the line from, oh, we did that and then that happened. But we know we shouldn't be doing that anyway. but clients love to do that because they want to see that return on investment. And if I'm tipping 10 grand a month into this machine, I love seeing that I get 70 or 95 or 113 out the other side. What do you mean I need to tip in another five and not tell how well it did? That seems risky. And so clients often will push back on that. But once you reach the point where you know you need to grow a brand where you have aspirations of market share and share of wallet and those sorts of terms get thrown around the boardroom then you're probably going to start increasing the share of your spend on on that sort of harder to measure the funnel if the funnel even exists anymore as a small business let me throw you anecdotally what we see is when we stop running what I would call brand ads are performance ads don't perform as well.

13:55We've seen this a lot over the past year and a half. Since iOS 14, a lot of businesses couldn't see the same results from their Facebook ads because of all of the tracking changes. And so they started pulling back on Facebook spend, starting with top of funnel spend. And yet, weeks, months later, performance starts to drop. The audience just isn't. Trevor actually had a wonderful piece in his talk about you can even use something like performance max this black box of a thing to just go for new people just very cheaply tiny portion of your budget please control it well but just let it go out there and find completely new people because you can't convert people that have never heard of you that's a really good point and what we i mean we focus on certainly because of the market i'm in is just all of that's just teaching you know all of that's just like wow this guy's got good ideas.

14:43You know, there's no, not trying to sell anything, just trying to have new people go, Oh, that that's somebody I want to pay attention to. And when, like I say, when we stop doing that, you know, we stop having great as good a results from some of our other programs. Which makes complete sense. That's where word of mouth starts, right? You're being useful and valuable to people. Like Seth Godin said, advertising is the tax you pay for being unremarkable. And if you just focused on ownership and holding onto everything else, then that's a very short-term mindset and it might work in the short term but it's not it unfortunately does for a lot of people in the short term yeah hey marketing agency owners you know i can teach you the keys to doubling your business in just 90 days or your money back sound interesting all you have to do is license our three-step process that it's going to allow you to make your competitors irrelevant charge a premium for your services and scale perhaps without adding overhead.

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17:28So with all of the changes in tracking that have happened and harder to tie those dots together, like we talked about before, we tend to look at sort of marketing efficiency ratio and the business goals. What are you trying to do? Where are you trying to get to? We're very good at optimizing. So we'll start by looking at what is already there. If somebody comes to us and they've never run any ads before, then it's going to be a different conversation. But if they're already spending 50 grand a month on Google Ads, then we'll look at that. Issues and opportunities within that, tweak that, improve that.

18:00And then we can start, once the data is right, then we can start to forecast and predict better. Overall, we see clients, there's a huge range. We've got clients with that sort of marketing efficiency ratio, business ROAS, however you like to term it, anywhere from 2 % to 33%. So most businesses can't do 33%. Spending one out of every$3 that comes in, top line, spending that back out the door on ads. That isn't going to work for most, but if you've got the funding and if that's your business goal, if that's the path you're on, then let's make that work. Not many businesses are going to do that.

18:38The majority are around about 8%. We had a client come into us last year around 2%. They knew they probably weren't spending enough. Actually, maybe it's 1.5%. And it was a conversation to get that up to two and then up to four. And this year they're on eight because they've seen huge results from doing that. But it depends on where the business is at. It depends how skinny their margin is. As you say, right at the beginning, it depends. But I think that overall percentage of just even knowing where you are now as a small business, how much are you spending on ads in total as a percentage of total top line revenue?

19:14and then this whole game is about making some changes and measuring what happens next. Yeah. And I, you know, I frequently have conversation with the clients that we work with that it's not just how much is that ad bringing me today? What's the lifetime value of that new client? You know, a lot of times when people realize that and they're like, oh, yes, actually that client's worth, you know,$50 or$5 ,000 or whatever, you know, over a short a period of time, maybe I can invest a lot more in my assets. Absolutely. What's the buying cycle look like? How often is someone going to buy from you? If you're a sort of retailer and you do have repeat purchases, then something like Google Analytics 4 can be very useful with that.

19:54It'll actually show you the chart of how that person goes up and what are they worth to you? Maybe not lifetime. I find a lot of small businesses find it tricky to wrap their head around the term lifetime, but what's the 90 day value of that person? What's the one year value of the typical customer? that's pretty easy to work out and yes i agree it does open eyes when you do it that way yeah so how do you tie conversion rate optimization to you know to your ad spend because you know you probably have this people come to you and they want you to run ads and you're sending them to stuff that won't convert you know is that you know how do you how you make the case for those two go hand in hand they absolutely go hand in hand i mean any kind of performance marketing I mean, you're going to hit diminishing returns after a point.

20:38There's very few ad accounts that we see where you could feasibly expect to get a 30 % improvement in performance in a week. A good CRO firm, given enough time and enough room to experiment, may well hit upon an experiment that gets you that 10%, 20%, 30 % boost. It's probably not going to be the first experiment they do because they're usually under pressure just to get a win early on. We don't do a lot of that in-house. We do give a lot of, like I said, advice, strategy, examples. We find that almost every small business, whether they have a marketing team or it's one person, almost every business is one person short in the marketing department.

21:16So giving them more homework and a laundry list of things to do isn't always well received. A lot of people know that they need to work on that, but it often falls further down the list. I find it staggering that the number of businesses still that might be spending 20, 50, 100 grand a month on ads, but won't invest. Sending them to their homepage. Yeah, or won't invest. We won't experiment. So we work with a number of other businesses. We don't do a lot of that, but we send people their way and say, you really need to work on your website. I was going to ask you about GA4 when you brought it up, but I'm afraid that that might open up a can of worms.

21:55But are you, obviously we're all going there. Google has no incentive not to turn it on. They're getting fined every day that GA3 stays on. So, you know, what's your advice to business owners? Not just that they have to embrace it, but I mean, how do they wrap their head around it after using this other tool so long? Yeah, we all, I'm just off this morning to do a training session with a client in person on the other side of town. Yes. Apart from the other stuff, as you say, don't leave it too long. Don't leave it till the last minute. Yes, it's going to happen. but yes, there are other tools out there if you wanna get off the Google system, but it actually, this is gonna be heretical to say, I don't mind it now.

22:34I mean, I've been pretty deep in it for a year and a half. It's taken me a while. I have a course now, I train people how to use it. And it's like everything, like Google Ads has made how many changes since we've been around? Five massive changes to the UI. Every time it happens, everybody throws the pram, Sure. Toys at the pram and nah, I don't want to do this anymore. We all hate change, but we're incredibly resilient. We've learned that for the past three years. Yeah. Yeah. And you lock yourself in a dark room for a couple of days. You go through some courses, you watch some YouTube, however it is that you learn, you get your data in there and play with it.

23:10If you haven't got it set up, go play with the Google demo account. It isn't all that. I mean, it's bad. It's a beast. It takes 47 clicks to get anything done. But once you know how to do those 47 clicks, it becomes a lot less scary. And I'm at the point now where I look at Universal and go, oh, that's old. Yeah, I think there's two things. Obviously, interface changes freak everybody out because it's like, where's that button that I used to click? But also, it comes at the data from a whole different point of view. And that's probably the part that's going to take the longest for people to understand.

23:45And the numbers don't match up. And you can drive yourself batty comparing universal with ga4 it's which is why we've been saying for a year run them in parallel so that you understand the nuance you understand the difference so that when we get to july 1 this year and still half the websites have not moved to ga4 i think there's going to be a lot of panic in july i'm going on holiday i'm not going to be around this although i have heard that google is going to auto migrate yeah they start to sites if they don't start that but it's clunky and it doesn't work wonderfully well. This is a great chance to reset and start to really value data.

24:22If you take all of those universal goals and some people have got like three, four views because they ran out of room with only 20 goals per view and they're just going to move all of that across. Most people in the business were not around when all those goals were set up. Almost nobody in the business understands why we actually measure all of those things anyway. Nobody realizes that half of them are broken. This is a great time to do a reset. Pages that they track don't exist anymore, right? Yeah. Sit down and think, what questions do we actually want to ask of the data? What do we really need to measure?

24:54Maybe we don't need to track these 67 things. Maybe that isn't really important to the business anymore. What do we really need? Let's get this thing set up and working properly. And let's, for the first time maybe for many businesses, actually start to value data. I love asking businesses, where does data sit on your balance sheet? They just don't value it. They all know that they're data driven and data informed, but nobody really values data. And you can't be an AI company without first being an analytics company. You can't get to being an analytics company if you don't have good data to base that analytics on.

25:29Peter Diamandis says, by the end of this decade, you're either an AI business or you're out of business. Now he sells a lot of books by saying sentences like that. I don't know if that's true, but we will all be using AI a hell of a lot more than we are today. But yeah, I think what he's really alluding to is you just won't be able to compete is what it really amounts to, right? It's because everybody will be much more efficient. They'll be much more informed. I mean, that's really going to be the challenge. Mike, tell people where they can reach out, find more about you, any of your work, any of your books.

26:02Easiest place is just to head to our website, websevy.com.au, because down here in Australia, you can find me on LinkedIn. I'm not particularly active on the socials because I'm an old person with two little kids and I've got far better things to do than play on Twitter all day. But yeah, websevy.com.au. I also have another business, agencysevy.com, where we train a lot of agencies how to do what we do, GA4, Google Ads and all that sort of stuff. So yeah, whether you want training or you want a second pair of eyes over your ad account, come find me and we'd love to help you. Awesome. Well, I appreciate you taking a moment to stop by the Duct Tape Marketing Podcast.

26:38And I'm certainly hopeful we can run into each other one of these days out there on the road or on a boat or whatever it would take. That would be lovely. Thank you, John. Hey, and one final thing before you go. You know how I talk about marketing strategy, strategy before tactics. Well, sometimes it can be hard to understand where you stand in that. What needs to be done with regard to creating a marketing strategy? So we created a free tool for you. It's called the Marketing Strategy Assessment. You can find it at marketingassessment.co, not.com,.co. Check out our free marketing assessment and learn where you are with your strategy today.