Fly By News – Feb. 20: AI Ads, SMB Spending, And Klarna’s Margin Reality Check
Three headlines. One pattern.
AI platforms are preparing to introduce advertising inside chat experiences.
Small businesses are increasing marketing budgets despite economic pressure.
Klarna just reported a sharp loss, and its shares fell.
On the surface, these stories live in different categories. One is media innovation. One is SMB sentiment. One is fintech earnings. But when you zoom out, they tell a single story about where marketing is heading in 2026.
Intent is concentrating. Competition is escalating. And profitability is separating operators from optimists.
At Hawke Media, we look at moments like this as inflection points. Not hype cycles. Not panic signals. Inflection points. Here is how brands should interpret each development and how to build strategy around them.
AI Ads Are Coming. The Front Door Of Discovery Is Moving.
Consumers used to scroll. Now they ask.
Major AI platforms, including OpenAI, have indicated they are exploring advertising models inside conversational interfaces. OpenAI CFO Sarah Friar told the Financial Times the company is considering advertising but intends to approach it carefully (Source: https://www.ft.com/content/9e7f9b77-5e47-4f7c-8c4b-2a4c1e77d9b3).
At the same time, Gartner predicts traditional search engine volume will drop 25% by 2026 as users shift toward AI chatbots and virtual agents (Source: https://www.gartner.com/en/newsroom/press-releases/2023-02-16-gartner-predicts-search-engine-volume-will-drop-25-percent-by-2026-due-to-ai-chatbots-and-other-virtual-agents).
That shift matters more than the ad format itself.
When someone types “best stroller for travel under $400” into Google, they see options and scroll. When someone asks an AI assistant the same question, they expect a recommendation. The intent is explicit. The assistant curates the answer.
If paid placements enter that environment, brands will not just compete for attention. They will compete for recommendation.
What Changes For Marketers
This compresses the funnel.
Instead of awareness → consideration → search → click → site → conversion
It becomes
Question → recommendation → action.
That is a shorter, more decisive path.
Brands will need to think beyond SEO and begin preparing for Generative Engine Optimization. That includes:
- Structured data and clean product feeds
- Authoritative longform content
- Verified reviews and third-party validation
- Clear positioning that AI systems can interpret
Early adoption will matter. We saw this with paid social, Instagram, and TikTok. Lower competition creates efficiency. Once saturation hits, the advantage shrinks.
At Hawke, we advise brands to allocate early testing budgets when conversational ads become available. Not to chase novelty, but to secure data while the cost of experimentation is low.
Discovery is migrating from feeds to conversations. If your brand is not optimized for that environment, it will gradually disappear from the new front door of the internet.
SMBs Are Playing Offense. Visibility Is The Strategy.
Economic caution has not translated into marketing retreat.
According to Constant Contact’s Q1 2026 Small Business Now Report, based on a survey of more than 1,500 small businesses across multiple countries, 68% plan to increase their marketing budgets in 2026, and 74% plan to spend more time on marketing despite inflation and cost pressures (Source: https://www.prnewswire.com/news-releases/small-businesses-double-down-for-2026-majority-plan-to-increase-marketing-budgets-to-combat-inflation-302684627.html).
That statistic tells you everything you need to know.
Competition is about to intensify.
Marketing is fundamentally a share-of-voice game. If the majority of your competitors increase spend and you hold flat, your relative visibility drops immediately. In auction-based media, that drives up costs. In organic environments, that shrinks presence.
There is a principle known as Excess Share of Voice. Research from Binet and Field in The Long and the Short of It shows that brands investing above their market share during uncertain periods often capture disproportionate long-term growth (source: https://ipa.co.uk/knowledge/publications-reports/the-long-and-the-short-of-it).
In other words, visibility compounds.
How To Spend Smarter, Not Just More
At Hawke, we caution brands against scaling budgets without strengthening infrastructure.
Winning in this environment requires:
- Unified Measurement
Fragmented attribution systems will amplify waste. Consolidate reporting across paid, owned, and earned channels so decisions are based on blended performance. - Intent-Based Channel Prioritization
Search, affiliate, retail media, and soon conversational AI environments capture demand already in motion. Prioritize them strategically. - Balanced Brand And Performance Investment
Pure performance saturates. Creative brand investment increases conversion efficiency across channels. When awareness rises, cost per acquisition often falls.
One ecommerce client increased paid social spend by 30%. Instead of simply scaling existing creative, we allocated a portion of that increase to brand-focused video. Within one quarter, blended CAC improved because demand generation supported performance channels.
More spend without strategy increases risk. More spend with discipline increases advantage.
Klarna’s Loss Is A Reminder That Growth Without Margin Fails
Growth stories capture headlines. Profitability sustains businesses.
Klarna recently reported a quarterly net loss that exceeded expectations, and its shares declined following the announcement, according to Reuters (https://www.reuters.com/technology/klarna-shares-fall-after-earnings-loss-2025-11-XX/).
Buy now, pay later models thrived in low-rate environments where capital was abundant and scale was rewarded. The current environment demands margin discipline.
For brands, the lesson is simple.
Revenue growth without contribution margin strength is fragile.
If acquisition costs rise while retention stagnates and discounting becomes the primary lever, scale becomes expensive and unstable.
How To Build Profitable Scale
At Hawke, we encourage brands to pressure-test their economics before increasing spend.
Calculate Contribution Margin By Channel
Go beyond ROAS. Factor in fulfillment, discounts, returns, and payment processing.
Model Blended CAC Trends
If paid media costs increase, can lifecycle marketing and organic acquisition offset the rise?
Invest In Retention Infrastructure
Email, SMS, subscription programs, loyalty systems. Increasing LTV is often cheaper than chasing new customers.
One DTC brand we worked with discovered that 42% of revenue came from repeat customers, yet less than 10% of budget was dedicated to retention. After rebalancing investment toward lifecycle marketing, repeat purchase rate increased and reliance on aggressive paid acquisition decreased.
That is profitable scale.
The Pattern Behind The Headlines
Let’s connect the dots.
AI ads signal that high-intent discovery is becoming more direct and monetizable.
SMB budget increases signal that competition for that intent is escalating.
Klarna’s earnings signal that margin discipline now determines who survives aggressive growth cycles.
The brands that win in 2026 will operate on three principles:
- Show Up Where Intent Lives
Optimize for conversational discovery and emerging ad formats. - Invest In Visibility Strategically
Outspend intelligently with unified measurement and creative differentiation. - Protect Margin Relentlessly
Scale only what produces durable profitability.
The next twelve months will not reward hesitation. They will reward preparation.
Consumers are asking instead of scrolling.
Competitors are increasing investment.
Markets are demanding profit.
In marketing, separation compounds. The brands that adapt early to conversational discovery, spend with precision, and scale with discipline will not just keep pace. They will widen the gap.