The AI-based search engine Perplexity plans to fundamentally transform the digital advertising model and challenge the US corporation Google in the $300 billion online advertising market. According to company statements, Perplexity is working on an innovative advertising system that will allow brands to purchase so-called "sponsored" questions, which will be answered by AI-generated and advertiser-approved responses.
Perplexity has already held talks with well-known companies such as Nike and Marriott to implement the system by the end of the year, according to internal sources. With this step, the San Francisco-based company aims to target premium brands in particular to increase its advertising revenue. Neither Nike nor Marriott wanted to comment on the talks.
Perplexity-CEO Aravind Srinivas, a former Google intern, is convinced that relevant advertising content from high-quality brands is of great benefit to users: "Many people make purchasing decisions based on this," he explained. The new system could seriously compete with the established search engine giants.
The functionality of Perplexity's advertising system differs significantly from the traditional bid-based model that Google has dominated for years. Users receive a detailed answer to their questions directly, followed by links to further sources. In the new model, brands will have the opportunity to bid for special “sponsored” questions, which appear as advertisements. Billing is done according to the CPM model (Cost-per-Thousand Impressions) with costs of over 50 US dollars per 1,000 impressions, according to a confidential source. For comparison: Google's CPM is estimated to be around 1,100 US dollars.
Perplexity's advance comes at a time when the search engine industry is experiencing massive upheavals. With the introduction of ChatGPT by OpenAI and other generative AI technologies, traditional search engines based on link lists are increasingly under pressure. Google has also made billion-dollar investments in generative AI, but there are concerns that these technologies could jeopardize the search engine's business model.
Despite these challenges, Google's search business continues to grow. In the second quarter of 2024, the company achieved a 14 percent increase in search revenues, amounting to 48.5 billion US dollars – more than half of parent company Alphabet's total revenue. As the market leader, Google has the most to lose, but it remains technologically well-positioned and has significant platforms in Android and Chrome that it can leverage.
Perplexity is just at the beginning of its endeavor to become a notable player in the market. With growth to 250 million search queries in July – compared to 500 million queries for the entire previous year – positive development is already evident. The company also generates revenue through subscriptions. Since January, revenue has increased from 5 million to 35 million US dollars in August.
Our goal is to create a 'money machine' with our new advertising system," Srinivas explained optimistically. With a strong US user base and growing global reach, Perplexity is even aiming for an IPO in the long term.
