Microsoft Corp. is testing a version of Bing’s artificial intelligence chatbot that features embedded ads, according to a new report.

Reuters reported today that Microsoft demonstrated the new version of the chatbot to a “major ad agency” earlier this week. It’s unclear when the update may be released. 

According to ad industry executives cited by Reuters, the embedded promotions in Bing’s chatbot could take the form of paid links below search query answers. Furthermore, Microsoft is said to be testing a second ad format for “advertisers in specific industries.” It would reportedly enable brands to target users with offers when they search for a product or service.

The software giant officially debuted its new search chatbot for Bing earlier this month following several weeks of rumors. Instead of surfacing website links, the chatbot generates natural language answers to user questions. It can also specify the sources from which it obtained the information included in an answer. 

The chatbot is based on an upgraded version of ChatGPT, a large language model developed by OpenAI LLC. Microsoft says the upgraded version is optimized for search use cases and can generate responses to user queries faster than the original, as well as with greater accuracy. It has developed a suite of technologies dubbed Prometheus to integrate the AI into Bing.

The company also added OpenAI’s upgraded version of ChatGPT to the software engine that Bing uses to generate standard search results. It credits the upgrade with delivering the “largest jump in relevance” since Bing’s launch.

Microsoft hopes that the new chatbot features will help it draw users away from search market leader Google LLC. According to Reuters, the company estimates every percentage point of market share it wins could lead to $2 billion in additional ad revenue. Its advertising division, which includes Bing’s ad tools as well as other products, generated nearly $18 billion in revenue last year.

To address the increased competition, Google this month introduced its own search chatbot. Google’s chatbot is called Bard and runs on a large language model called LaMDA that the search giant developed in-house. Initially, Bard will use a lightweight version of LaMDA optimized for hardware efficiency. 

Both Microsoft and Google have drawn scrutiny in recent days over the quality of their respective chatbots’ responses. Some early users have reported receiving objectionable answers in response to certain queries. 

As part of its effort to address user concerns, Microsoft is considering the possibility of adding new controls to its chatbot. The controls would enable users to restart a conversation with the bot, as well as customize the tone of generated answers. Google, in turn, has reportedly asked employees to rewrite incorrect answers generated by Bard.

Both Microsoft and Google made their respective chatbots available to a limited number of users earlier this month. The companies plan to make the chatbots more broadly available in the coming weeks.

Image: Microsoft