Large language models (LLMs) will continue advancing. OpenAI's anticipated GPT-5 (and successors) is expected to improve reasoning, coding and problem-solving abilities[1]. By 2026 AI assistants will be "multimodal", merging text with image/video inputs, enabling new use cases. For example, experts predict "AI agents" or multi-agent systems that interpret intent and chain actions (from marketing to ordering) will emerge, effectively automating end-to-end workflows[2]. In practice, SMBs may use specialized LLMs or on-premise GenAI tools (rather than public models) to summarize documents, draft proposals, manage customer queries, or analyze data[3][1]. Search and SEO will evolve too – AI "overviews" and assistants may become default, forcing brands to optimize content for AI discovery.
Image
Generative image models will produce ever more realistic and diverse visuals. Tools like Midjourney or DALL·E already let users create photorealistic or stylized images from text. By 2026 these models will routinely handle complex prompts and even 3D and animated content. AI-generated art and design will penetrate advertising and branding: "photorealistic images… to promote products" can be made on demand[4]. This democratizes creative work – small firms can generate professional-grade marketing graphics, logos or mockups without hiring artists. However, quality gains raise legal and ethical concerns: when "AI can perfectly replicate a musician's sound or an actor's likeness," copyright battles ensue[5]. (Indeed, recent AI-generated music clips already sparked lawsuits.) Businesses will need to ensure image outputs respect IP and brand authenticity as these tools mature.
Video
Generative video will finally reach viable quality. Early systems (e.g. Google's Veo, OpenAI's Sora) already create short high-definition clips from text. In 2026 we expect full movie- or ad-length videos generated with cinematic lighting, motion and even native audio[6][7]. For example, one report notes SMBs will soon "produce professional-grade marketing videos from text prompts… without expensive crews or big budgets"[8]. AI video generators will allow small businesses to make personalized product demos, commercials or social-video content internally. Video creativity will become "production-ready" – seamless multi-scene narratives and synced dialogue– effectively removing the cost barrier for quality video content[7][6].
Implications for Australian SMBs
Generative AI is already entering Australian SMEs' operations. A recent government report shows 41% of Australian businesses use some AI tools (up 5 points in one quarter)[9]. Notably, "generative AI assistants" rank among the top applications (27% of firms use them)[10]. This suggests many SMEs are experimenting with chatbots, content generation and automation. For Australian SMBs, this means routine tasks like customer emails, inventory updates or marketing research can be partly offloaded to AI. Productivity and decision-making can improve without hiring specialists – IDC finds GenAI "enables small businesses to automate time-consuming tasks… boosting efficiency and productivity"[3].
However, the shift also brings new demands. Business owners must integrate AI thoughtfully: mapping their processes, selecting tools that fit their data and industry, and training staff to use them safely[11][12]. There are also regulatory factors: the Australian government's AI plan and ethics guidelines mean transparency and consent may soon be required in AI deployments. In practice, successful SMBs will treat AI as a tool to augment human work, not replace it[11][13]. Those that "fail to experiment" risk falling behind in a more automated, AI-driven economy[14].
Opportunities
Efficiency and Cost Savings
AI can automate repetitive tasks (data entry, document processing, scheduling) so staff focus on higher-value work. IDC notes generative AI can "automate… data entry and content generation, boosting efficiency" for SMBs[3]. This can directly cut labor costs or free up employee time.
Affordable Content and Marketing
With AI, SMEs can produce high-quality marketing materials in-house. By 2026, small firms will use AI to generate copy, images and videos on demand – for example, creating engaging ad videos or social media content without hiring external studios[8][4]. The Deloitte Access Economics model even finds that SMBs moving up the AI maturity ladder could see profitability rise ~45%[15].
New Business Models and Services
Generative AI opens new product/service lines. For instance, a design shop might offer AI-based custom artwork; retailers could provide virtual "try-on" demos; or educators could sell personalized video courses. AI-generated prototypes and simulations (text, image or video) enable faster innovation cycles and customer testing.
Enhanced Creativity and Customization
AI tools lower the creative barrier. Small firms can personalize customer interactions at scale – e.g. custom email campaigns or chatbots that use local language. AI-assisted design (like generative branding or dynamic visuals) lets even non-experts produce creative assets. Developers can prototype faster with code-generation tools (e.g. GitHub Copilot increases developer productivity[16]).
Data-driven Decisions
Generative analytics (e.g. natural-language summaries of reports) help owners understand trends or financial data without analytics training. AI can suggest strategies based on market research, grant writing or product descriptions.
Risks
Inaccuracies (Hallucinations)
Generative text and media can confidently produce false or misleading content. An LLM might invent a plausible-but-fake answer, potentially eroding trust. Experts warn that AI outputs must be reviewed: in practice, "hallucinations persist" and only human oversight ensures accuracy[17]. SMBs relying blindly on AI could make costly errors (wrong legal advice, bad data insights, etc.).
Legal and IP Issues
As AI art and video improve, intellectual property risks grow. AI may inadvertently replicate copyrighted material (e.g. mimicking an artist's style or song)[5][18]. Copyright law is still catching up; landmark cases are expected. For SMBs, this means any generated content must be checked for infringement, and vendors' licensing must be clear.
Ethical and Reputational Risks
Biases in training data can lead to insensitive or discriminatory outputs. Using AI without careful tuning can harm brand reputation. Also, with AI-generated marketing flooding the web, consumers crave authenticity. Brands that lean too heavily on "manufactured" AI content may lose trust. In a survey industry, 82% of consumers still want human-like connection – firms must balance AI use with genuine storytelling.
Security and Data Privacy
AI agents that access business data (customer records, financials) increase attack surface. One expert notes that soon "agentic AI and other non-human identities will outnumber human users," raising new IAM challenges[19]. Unapproved "shadow AI" tools (employees using unvetted chatbots) can leak data or introduce malware. SMBs must enforce security controls on AI usage to avoid breaches.
Regulatory Compliance
Upcoming Australian AI regulations will require explainability, consent, and robust governance. SMBs face compliance burdens if they mishandle customer data in AI systems. Overlooking regulation could lead to fines or consumer backlash.
Competitive Pressure
Larger firms will leverage AI at scale (e.g. Amazon using AI in retail, big banks in finance). SMBs that cannot adopt AI effectively risk losing market share. The pace of AI innovation is fast – falling behind may mean being outcompeted on price, service speed or product features.
Summary Recommendations
Identify Pilot Projects
Map your core processes and pinpoint repetitive pain points (e.g. data entry, email drafting)[11]. Start with small, low-risk AI pilots (like automating customer email responses or generating simple reports). Measure and learn from each trial.
Maintain Human Oversight
Always have staff review AI outputs. For any generated content (text, image or video), set clear quality checks. This "human-in-the-loop" step is critical to catch errors and biases[17]. Appoint an internal AI reviewer to own accountability.
Establish Governance
Create simple guidelines covering ethical use and privacy. Track versions of prompts and models (for audit trails)[13]. If AI produces sensitive information, ensure customer data is protected and usage is transparent. Training staff on these protocols builds trust and reduces risk.
Choose the Right Tools
Prefer AI platforms that integrate with your existing software (CRM, ERP, etc.) so that agents can automate across systems. Avoid one-size-fits-all public models if data security is a concern; consider industry-specific or on-premise solutions as Gartner suggests[12].
Upskill Your Team
Invest in basic AI literacy – teach staff how to craft prompts, evaluate output, and work alongside AI tools. This improves "AI literacy" and helps your team use generative tools creatively.
Monitor and Adapt
Stay updated on AI developments and Australian regulations. Be prepared to adapt strategy as models improve (e.g. migrating to new tools) and as rules evolve. Continuously assess ROI: scale up projects that boost productivity and trim those that don't meet expectations.
Embrace Authenticity
Use AI to enhance your brand's voice, not replace it. Maintain authentic human elements (stories, values) in customer communications to stand out in an AI-saturated marketplace.
By thoughtfully piloting generative AI and building in oversight from the start, Australian SMBs can unlock substantial efficiencies and creativity gains while managing the attendant legal and ethical challenges[11][13]. These measures will help small businesses use next-generation AI as a strategic advantage rather than a liability.
Sources
Expert analyses and market reports from IBM, Reuters, Australian government, and industry (2023–2025)[6][1][12][10][7][2][4].
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https://www.reuters.com/business/retail-consumer/openais-long-awaited-gpt-5-model-nears-release-2025-08-06/ - The trends that will shape AI and tech in 2026 | IBM
https://www.ibm.com/think/news/ai-tech-trends-predictions-2026 - Tech Trends 2026: Here's What Small Businesses Will Focus On in the New Year | BizTech Magazine
https://biztechmagazine.com/article/2025/12/tech-trends-2026-heres-what-small-businesses-will-focus-new-year - 2026 Guide to Generative AI: Techniques, Tools & Trends
https://hatchworks.com/blog/gen-ai/generative-ai/ - 8 AI Predictions That Will Reshape 2026 - AnswerRocket
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https://biztechmagazine.com/article/2025/12/tech-trends-2026-heres-what-small-businesses-will-focus-new-year - 2026 is the year of AI for SMEs – here's how to not get left behind
https://www.rbmagazine.com.au/news/2026-is-the-year-of-ai-for-smes-heres-how-to-not-get-left-behind/ - 2026 is the year of AI for SMEs – here's how to not get left behind
https://www.rbmagazine.com.au/news/2026-is-the-year-of-ai-for-smes-heres-how-to-not-get-left-behind/ - The AI Edge for SMBs | Deloitte Australia
https://www.deloitte.com/au/en/services/economics/perspectives/artificial-intelligence-small-medium-businesses.html - 2026 Guide to Generative AI: Techniques, Tools & Trends
https://hatchworks.com/blog/gen-ai/generative-ai/ - 2026 is the year of AI for SMEs – here's how to not get left behind
https://www.rbmagazine.com.au/news/2026-is-the-year-of-ai-for-smes-heres-how-to-not-get-left-behind/ - 2026 Guide to Generative AI: Techniques, Tools & Trends
https://hatchworks.com/blog/gen-ai/generative-ai/ - The trends that will shape AI and tech in 2026 | IBM
https://www.ibm.com/think/news/ai-tech-trends-predictions-2026