Perplexity the AI Search Pioneer to Begin Ads

Hey Everyone,

Perplexity AI has announced plans to introduce advertising on its AI-powered search platform by the fourth quarter of 2024. But what does this actually mean? According to data from a16z, Perplexity has climbed in AI B2C app adoption from the number 7 ranking in March, all the way to number 3 ranking in July, as per SenseTower app data.

The most bizarre part of the story? Perplexity has decided its going to use a cost-per-mille (CPM) model, instead of the cost-per-click (CPC) model common in search engines, may indicate low click-through rates on source links and this is likely to drive up the cost of Advertising on the AI search chatbot engine.

The company's pitch deck shows that initial ad categories will focus on topics such as technology, health and pharmaceuticals, arts and entertainment, finance, and food and drink. The platform currently handles about 230 million searches, a significant increase over last year.

With OpenAI partnering with so many media publications for its SearchGPT, for now buried within ChatGPT, Perplexity itself will offer advertisers the ability to run video ads on mobile (at the top of related questions) or desktop (on the side screen).

After some controversy, Perplexity recently launched a program for publishers with an initial batch of partners, including TIME, Der Spiegel, and Fortune, in which it plans to share revenue from interactions where a publisher's content is referenced. Perplexity is a trail-blazer for offering consumers a new kind of chat and research search ability.

Perplexity has seen U.S. queries increasing eightfold in the past year according to a circululating PitchDeck. Their decision to take the CPM route is very perplexity, as you know search engines typically use the cost-per-click (CPC) model, where advertisers pay only when an ad is clicked. The CPC model is more attractive to advertisers because it provides greater certainty and measurability of ad effectiveness.

Perplexity Pro generally costs  $20 per month or $200 per year. In the era of ChatGPT, every AI product wants your subscription. They are even running a promotion with LinkedIn Premium in recent days. Perplexity is one of the big-winners if you look at B2C Generative AI apps as a whole. The space is very erratic with quickly changing consumer behaviors, but Perplexity has climbed the charts consistently. Importantly, Perplexity slightly edges out ChatGPT in visit duration (at over seven minutes) according to Similarweb data, suggesting that users are deeply engaged. Many white collar workers have adopted Perplexity in jobs where constantly daily research is occurring or important.

The Perplexity Ads likely to launch in September, will be categorized into 15 key areas, including arts and entertainment, finance, food and beverage, health, and technology. Perplexity might also herald a shift to how the world wide web will work, as it relies on publishers and websites to provide up-to-date information however with a business model that essentially generate answers that eliminates in part, the need to click on a website and conduct lengthy research manually.

While Microsoft had adopted OpenAI technology for its Bing search engine through its early investment, it didn't inspire consumers, meanwhile Perplexity seems to be adding actual value to professionals and workers. Perplexity is just this summer entering the top 1,000 websites globally by monthly visits with around 52 million visits.

As of April 2024, Perplexity AI raised $62.7 million from investors including Nvidia, Databricks (via Peter Sonsini), Yann LeCun, Jeff Dean, and Jeff Bezos. Other investors include Naval Ravikant, Susan Wojcicki, Andrej Karpathy, Elad Gil, Pieter Abbeel, Paul Buchheit, Bob Muglia, Nat Friedman, Clément Delangue, Garry Tan, Stanley Druckenmiller, Dylan Fields and others.

Perplexity has built its algorithms incorporating a variety of LLMs, the idea being that this produces a more accurate and richer response. Presumably its direct future competitor is OpenAI's SearchGPT. Other competitors might include You dot com, and Genspark, among others.

A variety of Reddit discussions were mocking of having Ads inside of Perplexity. While Sam Altman has thrown some shade on Advertising in the past, as we know from history everyone eventually incorporates the Advertising model as they scale, it's just too profitable and attractive. Witness today even Uber and Netflix have Ads and Amazon has become a leader in the field inspite of whatever Jeff Bezos, Reed Hastings or whoever else related once might have said about Ads.

It will have taken Perplexity just over two years until they incorporated Ads into their business model. On its website of course they said: “Perplexity was founded on the belief that searching for information should be a straightforward, efficient experience, free from the influence of advertising-driven models.” Supposedly CEO Aravind Srinivas was always bullish on the Ads-model for Perplexity.