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AI-powered search engine Perplexity is in talks with brands including Nike and Marriott over its new advertising model, as the startup mounts an ambitious effort to break Google’s stranglehold on the $300 billion digital ad business.
The San Francisco-based group is seeking to rethink Google’s auction-based advertising system, where marketers bid to have a sponsored link placed in response to search queries.
Currently, Perplexity’s AI chatbot provides a comprehensive answer to users’ questions based on information from the Internet, citing sources and including links to web pages. Perplexity offers suggestions for follow-up questions.
Under its new advertising model, brands will be able to bid on a “sponsored” question, which features an AI-generated answer approved by the advertiser.
According to correspondence seen by the Financial Times, Perplexity has been in talks with a handful of major companies, including Nike and Marriott. The company said it hoped to roll out the advertising system by the end of the year and was targeting “premium” brands. Nike and Marriott declined to comment.
Aravind Srinivas, CEO of Perplexity and a former Google intern, said: “Ads are really valuable when they are relevant and come from high-quality brands, and a lot of people make purchases based on that.”
Perplexity’s effort is part of a wave of new competition that Google faces as the research sector undergoes its most radical change in more than two decades.
OpenAI’s ChatGPT also provides fast and comprehensive answers to many questions, threatening to make a traditional search engine’s list of links and the lucrative ads that appear next to them redundant.
Google, which has spent billions of dollars developing generative AI, has launched an experimental AI search feature and has also considered offering a subscription-based AI research servicethe FT reported in April.
Analysts suggest Google Google is being held back by the “innovator’s dilemma” because generative AI could damage the foundations of its existing search offering. However, there is still some skepticism about whether the technology will seriously disrupt Google’s dominance.
Advertisers will be charged on a CPM (cost per minute) basis, or more than $50 for every 1,000 impressions generated by these sponsored posts, according to a source familiar with the model. According to eMarketer analysts, this figure is estimated at $1,100 for the same number of impressions by Google.
Last year, Microsoft CEO Satya Nadella said his multibillion-dollar alliance with OpenAI improve your Bing search enginewhile helping to demolish the high profit margins that have supported Google’s core business.
But despite being one of the first tech giants to add AI to search, Microsoft is just starting to gain more market share in search advertising in the latest quarter, said Joseph Teasdale, chief technology officer at Enders Analysis.
At the same time, Google’s search business grew 14% in the three months to June, compared with the same period a year earlier. Search accounted for $48.5 billion in revenue, more than half of parent company Alphabet’s total revenue.
“As the reigning champion, Google has the most to lose from a shakeup,” Teasdale said. “But Google is also in the strongest position: it’s strong in AI, users trust it for search, and it controls key user platforms like Android and Chrome on which it can deploy its version of AI search.”
The financial success of Perplexity’s new ad system depends on its ability to achieve significant scale. The company says it had 250 million search queries in July, compared with 500 million for all of last year.
Perplexity makes money through subscriptions, charging $20 a month for its Pro service, which provides access to more advanced models and image generation. Annualized revenue — a projection of full-year revenue based on extrapolating sales from the most recent month — rose from $5 million in January to $35 million in August, according to the company.
Srinivas said he wanted his advertising system to become “a money printing machine.”
“A lot of our traffic comes from the US and other high GDP countries, so it’s a good experience…we want to go public and become our own successful company, and there’s no reason not to.”
Additional reporting by Eri Sugiura and Kana Inagaki
