Perplexity intends to compete with Google in the digital advertising market
Perplexity, an artificial intelligence company specializing in online search, is in talks with major brands like Nike and Marriott about its new advertising model, in an ambitious move aimed at breaking Google’s dominance of the $300 billion digital advertising market.
The San Francisco-based startup seeks to redesign Google's auction-based advertising system, in which advertisers compete to display paid links alongside search results.
Perplexity's AI-powered chatbot currently provides comprehensive responses to users' questions based on information available online, citing sources and providing links to websites, and the bot also displays suggested follow-up queries.
Under the proposed advertising model, brands will be able to bid for a “sponsored” question that includes an AI-generated answer that the advertiser approves.
According to the Financial Times, Perplexity has held talks with a limited number of major companies in the hope of launching the new advertising system before the end of this year, targeting “luxury” brands.
“Ads are really useful when they are relevant and come from high-quality brands, and they drive a lot of people to make a purchase based on that,” said Aravind Srinivas, CEO of Perplexity, who previously worked at Google.
Perplexity's efforts come as it competes with Google, as the search industry undergoes its biggest transformation in more than two decades.
OpenAI's ChatGPT also provides quick and complete answers to many questions, threatening the traditional search engine model, which displays lists of links along with profitable ads that appear next to them.
Google has invested billions of dollars in developing generative AI, launched an AI-powered search experience, and considered offering an AI search service for a subscription, according to a previous report published by the Financial Times months ago.
Perplexity will rely on a “cost-per-thousand impressions” (CPM) pricing model, with advertisers paying more than $50 for every thousand impressions of sponsored ads. By comparison, Google is estimated to charge more than $1,000 for the same number of impressions, the newspaper reported, citing analysts.
According to company officials, most of Perplexity's users are in the United States and other countries with high GDPs, making it a suitable platform for attracting advertisers, and the company is planning an IPO in the future.
Google's search business grew 14% year-on-year in the second quarter of this year, with search revenues reaching $48.5 billion, accounting for more than half of the revenues of parent company Alphabet, Google's owner.
The financial success of Perplexity’s new ad system will depend on its ability to scale dramatically. The company says it received 250 million search queries through its search engine in July of this year, compared with 500 million queries in the whole of last year.
Perplexity currently generates revenue through subscriptions, with a Pro subscription available for $20 per month for more advanced features and image generation capabilities.
The company's projected annual revenues for the current year have increased from $5 million in January to $35 million in August.