The Destination of Advertising Budgets is Fundamentally Changing

First, let’s look at the numbers.

OpenAI’s ChatGPT advertising business has reached an annual revenue pace of $1 billion. Considering that it took Google about five years to reach $1 billion in YouTube advertising, this speed is remarkable.

This is not just a story about how “AI is amazing.” It’s a structural discussion about how the way people search for information has changed, leading to a shift in the flow of advertising budgets.

For local small and medium-sized enterprises (SMEs), this is not a distant issue. Is it acceptable for a company that has been pouring 100,000 yen a month into Google search ads to continue doing the same? The answer is likely “probably not.”

What is Happening—The Shift from “Search” to “Questions”

The traditional advertising model was simple.

1. Users search for “location + industry” on Google.
2. Ads are displayed at the top of the search results.
3. Charges are incurred when clicked.

This model works under the assumption that people engage in the behavior of typing keywords into the search box.

However, now ChatGPT has over 400 million monthly active users. It has been designated as a “Very Large Online Platform (VLOP)” by the EU. What is happening is that users are starting to ask “questions” instead of conducting “searches.”

“Please tell me a cost-effective Italian restaurant in Shibuya”—people are beginning to separate into those who type this into Google and those who ask ChatGPT. Ads have started to be naturally integrated into ChatGPT’s responses.

What is the essence of this change? The “display location” of ads has shifted from the list of search results to “within the AI’s response.

What Changes for SMEs

Cost Structure Changes

The average cost per click (CPC) for Google search ads varies by industry, but in Japan, it is around 100 to 500 yen. For competitive keywords, it can exceed 1,000 yen. With a monthly budget of 100,000 yen, this translates to 200 to 1,000 clicks. Assuming a conversion rate of 2%, this results in 4 to 20 inquiries per month. This is the reality.

While the pricing structure for ChatGPT Ads is still limited in publicly available information, early-stage advertising platforms are typically “cheap.” Google Ads were also very inexpensive in their early days. Facebook Ads were incredibly cheap around 2013. New advertising channels tend to have lower CPCs the earlier you enter. History has proven this.

Even with a monthly budget of 100,000 yen, it is worthwhile to try ChatGPT Ads now. If the CPC is half that of Google Ads, the number of clicks can double with the same budget.

The Structure of “Being Recommended” Changes

There is another, more fundamental change.

In Google search, users see multiple options in a list. They choose from 10 search results. Therefore, “being displayed at the top” was the key to success.

ChatGPT’s responses are different. The AI returns one or two options as “recommendations.” Users often accept the AI’s recommendations without comparing alternatives.

This presents both opportunities and risks for SMEs.

Opportunity: You don’t have to compete on the same level as large corporations. If the AI recommends, “This is the best option in your area,” you could be chosen even if you are outspent on advertising by larger companies.

Risk: If you are not recommended by the AI, it is as if you do not exist. You may not just fall to the second page of search results; you may not even be considered at all.

What EU Regulations Mean—Act Before the Rules Change

With the EU designating ChatGPT as a VLOP, the following regulations will apply:

• Restrictions on targeted advertising to minors
• Prohibition of profiling based on personal beliefs, health status, etc.
• Obligation to clearly indicate that it is an advertisement
• Obligation for prompt response to illegal content

At first glance, this may seem like an issue only for large corporations. However, in reality, if the rules for advertising platforms change, it will affect all companies that advertise there.

What specifically will happen?

1. The accuracy of targeting may decrease. If detailed targeting based on personal attributes is restricted, it will become difficult to deliver pinpoint ads like “30s female, living in Tokyo, interested in beauty.”
2. Conversely, it will become an era where the quality of content matters. If targeting cannot be narrowed down, the content of the ads themselves must attract interest. This actually favors SMEs. Local, specific stories resonate more than generic ads from large corporations.
3. Transparency will be demanded. In an environment where it is made clear that “this is an advertisement,” stealth marketing techniques cannot be used. Companies that honestly convey value will be chosen.

So, What Should We Do?

For SMEs with a monthly advertising budget of 100,000 yen, here are three actions to take starting tomorrow.

1. Allocate 20-30% of the Advertising Budget to AI Advertising Channels

There’s no need to transfer the entire amount immediately. First, allocate 20,000 to 30,000 yen to AI advertising channels like ChatGPT Ads or Perplexity Ads. Maintain Google Ads at 70,000 to 80,000 yen while comparing CPC and conversion rates. Make decisions based on data, not feelings.

2. Prepare Information to Be “Recommended by AI”

This is not just about advertising. When ChatGPT generates responses, it references information available on the web. Clearly state on your company website “what expertise you have, in which region, and what achievements you possess.” Organize structured data. Enhance your Google Business Profile. This can be done with zero advertising costs.

For a local construction company, simply stating “120 achievements in wooden house renovations in XX city over 30 years” increases the likelihood of being recommended by AI. Vague statements like “service that is close to customers” provide no basis for AI judgment.

3. Create Advertising Creatives in “Human Language”

In the context of AI advertising, ads are inserted into conversations. Banners like “Click Now!” will stand out awkwardly. Ads that communicate in a natural context with specific numbers and achievements are required.

“Founded 40 years ago, with 3,000 construction achievements in the local area”—that’s all it takes. No need for embellishment. Just the facts, specifically.

The Real Question is Not “Advertising Costs”

Finally, just one thing.

The fact that ChatGPT ads have reached $1 billion annually truly signifies not a tactical discussion about “where to allocate advertising costs.”

It represents a structural change in how people access information.

In the search engine era, winning was about taking the top spots through SEO and advertising costs. In the AI response era, it will be determined by whether the AI can provide “reasons to recommend this company.”

And this is actually good news for SMEs. Because the reasons for being recommended are not based on “the amount of advertising budget” but rather on “depth of expertise,” “specificity of achievements,” and “trust within the region.”

While large corporations run uniform ads nationwide, local SMEs are recommended by AI with the message, “This is the best option in this area.” Such reversals have already begun.

Where will advertising costs disappear? The answer is not that they “disappear” but rather that the “places they reach change.” Whether or not to respond to that change starting today—that is the only question.