Perplexity AI's move to introduce ads signals the next frontier in search advertising

Perplexity AI's recent announcement to roll out advertising in Q4 signals a significant shift in AI-driven search platforms, where the boundaries between organic results and paid placements are becoming increasingly blurred. With the integration of targeted ads into AI-powered search engines, a new chapter in digital advertising is unfolding, one that blends intent-driven search with hyper-personalised ad experiences.

The platform's approach, which allows brands to place display ads alongside generated answers to specific user queries, represents a more intuitive and direct form of contextual advertising. Categories such as arts, food, technology, health, and finance will serve as prime real estate for advertisers aiming to tap into audiences already in a discovery mindset. For digital marketers, this opens up an opportunity to interact with users at pivotal moments, delivering targeted messages when and where they are most likely to engage.

The two-phase rollout, as suggested by tech entrepreneur Ionut Ciobotaru, will likely follow the path set by other tech giants such as Netflix, which initially implemented higher pricing and experimental placements to gather valuable user feedback. Perplexity is expected to refine its strategy by starting with third-party solutions and eventually developing its own in-house capabilities, providing diverse ad placements and programmatic options.

Perplexity is not alone in recognising the immense potential of integrating ads into AI-driven platforms. Google's AI Overview and Microsoft Bing have already ventured into the space of monetising search with advertising solutions, leveraging AI to enhance user engagement and refine ad targeting. As these platforms continue to evolve, AI-driven advertising offers a new avenue for revenue generation, with the potential for substantial returns through cost-per-mille (CPM) models. Perplexity AI has set its CPM rates at $50+ per 1,000 impressions, but areas of higher demand, such as tech, pharma, and automotive, may see prices soar to $80-$100 due to auction dynamics.

Not far behind, OpenAI is also rumoured to be working on SearchGPT, an AI search platform that could further intensify competition. Although still in the prototype phase, the development of such a platform signals a future where AI search engines become primary vehicles for digital advertising. These developments indicate a broader trend where AI-powered platforms are not just information providers but become central to the digital advertising ecosystem.

Experts speak

Amitt Sharma, CEO of VDO.AI, an adtech platform that specialises in video and content advertising solutions, regards this trend as a game-changer for the digital advertising space. “These platforms engage highly receptive audiences already in a discovery mindset, and the ability to intuitively grasp user intent promises unparalleled precision in targeting,” says Sharma.

His remarks highlight the precision with which AI can analyse and respond to user behaviour, enabling advertisers to reach the right audiences at precisely the right moment. Sharma also emphasises the power of contextual advertising, which has long been a focus at VDO.AI, as a means to create more meaningful consumer interactions.

As AI becomes more adept at understanding and predicting user intent, the boundaries between organic search results and paid ads could become increasingly subtle. Sharma points out that this convergence could lead to a more seamless user experience, where advertisements complement rather than interrupt the flow of information. This evolution will also place greater emphasis on the need for transparency and trust between brands and consumers, as users are exposed to a mix of paid and organic content during their search journey.

Sahil Chopra, founder and CEO of iCubesWire, an adtech platform which offers an affiliate advertising network for advertisers to reach their target consumers, draws a parallel between the rise of advertising in AI-driven platforms and the early days of social media advertising. “Remember when social media was just about connecting with friends? Then ads came in and changed the game. AI platforms are next,” says Chopra. For marketers, the arrival of ads on platforms like Perplexity AI is not just an additional revenue stream for tech companies but an exciting opportunity to engage with audiences in smarter, more nuanced ways.

The technical underpinnings of AI search ads

At the core of this evolution lies AI’s ability to enhance the relevance and precision of ad placements. Unlike traditional search engines, which rely on keyword matching and demographic targeting, AI-driven platforms delve deeper into user behaviour, context, and intent. As a result, AI-powered search platforms can serve ads that are not only more personalised but also more aligned with the specific moment of the searcher’s journey.

Sajal Gupta, chief executive at Kiaos Marketing, believes that AI search platforms could eventually become key players in digital advertising, especially as they integrate with existing search engine partners. He points to partnerships like the one between OpenAI and Microsoft Bing, where AI tools augment the search experience while reallocating the advertising pie between direct searches and partner sites. Gupta suggests that this model could have far-reaching implications for digital advertising, particularly as more partners get involved and revenue-sharing agreements evolve.

He elaborates, “Search engines have their own platforms and partners. Eventually, AI tools will integrate with this partnership system, like OpenAI partnering with Bing, where a certain amount of search happens on Bing’s site and also on their partner sites. This kind of collaboration reallocates the advertising pie between direct searches and partner sites. For tech platforms involved in direct search, there will be revenue-sharing models as more partners get involved. It’s still evolving, but it has the potential to impact digital advertising significantly.”

However, Gupta also warns that the user interface (UI) of these AI search platforms will play a critical role in determining how users perceive and engage with ads. “Advertising doesn’t necessarily have to be intrusive,” he says, noting that if ads are integrated subtly, they may enhance rather than detract from the user experience. “The user interface is crucial here. None of us have seen how these AI platforms will handle advertising yet, but if it’s done in a subtle way, it might not disrupt the experience. However, it will heavily depend on the UI design.”

The future of AI and digital advertising

As Perplexity AI prepares to roll out its advertising programme, the move could serve as a bellwether for the future of AI search platforms. With giants like Google, Microsoft, and OpenAI already exploring similar avenues, the race to dominate the AI-powered ad space is only just beginning. For advertisers, this represents an exciting opportunity to engage with consumers in a more direct, relevant, and timely manner, while for AI platforms, it opens up new revenue streams that could help sustain and expand their services.