The news: Microsoft will debut AI-powered ads in its generative AI chatbot, Copilot, it said at its Advertising Accelerate event. The company plans to introduce multiple ad formats and tools designed to lure advertisers to the platform.

• The new features include Showroom Ads, a split-screen experience mimicking in-store guidance—brand interaction takes place on one side and answers questions in real time, while Copilot stays on the other for follow-up queries.
• Copilot will also provide an “ad voice” feature that explains why specific ads appear in response to user queries and branded AI agents that let brands engage directly with Copilot responses.

Paul Longo, general manager of AI in ads for Microsoft advertising, claimed that the Copilot ads experience is a “critical component of how we’re going to evolve our business” in conversation with Adweek.

Why this is happening: Microsoft wants to secure more ad dollars in the chatbot space as it goes against competitors like Amazon’s Rufus and Perplexity. While search giant Google has an insurmountable lead, Microsoft’s efforts have had some success.

• Microsoft’s search and news ad revenues rose 21% last quarter, though it still lagged behind Meta and Google.
• Copilot outperformed traditional search ad relevance by 25% and doubled click-through rates last year, per Microsoft.

Our take: AI-powered ads could be a key contributor to Copilot’s growth efforts, as the technology has struggled to impress enterprise customers in the past. For marketers, Copilot could present a new opportunity to connect with audiences conversationally, strengthening customer engagement and potentially driving sales.

However, AI chatbots require a new approach to search-driven ad strategies. Rather than presenting users with generic ads, advertisers must ensure that Copilot ads are relevant and tailored to individual users. A new approach could enable advertisers to harness the power of genAI tools while making advertisements more effective overall.