The startup wants to change the auction-based advertising system pioneered by Google, where brands bid for ad space in search results.

Currently, Perplexity's AI chatbot answers user questions based on information from the internet, along with sources and links to websites.

With the new ad model, brands can bid on “sponsored” questions, where the answers are generated by AI and approved by the advertiser. The company has been in discussions with Nike and Marriott and hopes to roll out the system by the end of the year, focusing on luxury brands.

Aravind Srinivas, CEO of Perplexity and a former Google employee, stressed that advertising is useful when it is relevant and comes from quality brands, based on real consumer needs. Perplexity’s efforts are part of a wave of challenges to Google as the traditional search engine undergoes its biggest change in two decades.

Perplexity and competitors like OpenAI’s ChatGPT have the potential to provide quick answers, replacing Google’s traditional list of search links, along with accompanying ads. In response, Google has invested billions of dollars in AI and is experimenting with its own AI search function. But analysts say Google faces a challenge in maintaining its position, as AI could upend its entire current model.

Under Perplexity's advertising model, marketers pay based on CPM (the cost an advertiser pays for every 1,000 impressions), at a cost of about $50 per 1,000 impressions, compared to Google's $1,100.

Microsoft, with its partnership with OpenAI, is also competing in this space, but has only captured a fraction of the search advertising market compared to Google. Google still generated $48.5 billion in search advertising revenue in its most recent quarter, accounting for more than half of parent company Alphabet’s total revenue.

The future of Perplexity’s new ad system depends on its ability to scale. The company reported 250 million search queries in July, up from 500 million the year before. Perplexity also makes money from a $20-per-month subscription service that offers more advanced AI features. The company’s annual revenue grew from $5 million in January to $35 million in August.

Cao Phong (according to FT)