← Behind the Numbers: an EMARKETER Podcast
Behind the Numbers: an EMARKETER Podcast
The Daily: GenAI Search Ads or GenAI Search Subscriptions? | Dec 12, 2024
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- [00:01]
Marcus
What does data collaboration enable? Glad you asked. Innovative companies to unlock powerful new insights that transform customer experiences and fuel business growth. That's what with Liveramp, marketers get the industry's only interoperable platform for data collaboration across every cloud wall garden and media platform.
- [00:19]
Jacob Bourne
Learn more@liveramp.com it really needs another revenue stream to make that happen. And just for some context, I mean, generative AI search deploying that call plus 10 times more than deploying traditional search. And so that kind of gives you a sense of what the main differentiator here is.
- [00:44]
Marcus
Hey gang. It's Thursday, December 12th. Jacob, Daniel and listeners, welcome to behind the Numbers daily marketing podcast made possible by Liveramp. I'm Marcus. Today I'm joined by two folks. Let's meet and we start with our senior editor of the marketing and advertising briefing. He is based in New York. He is called Daniel Konstantinovich.
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Daniel Konstantinovich
Hello. I am called Daniel Konstantinovich. It's good to be here.
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Marcus
It's true. The whole time. We're also joined by one of our technology analysts. He is based on the other side of the country in California and we refer to him as Jacob Bourne.
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Jacob Bourne
Thanks for having me today, Marcus.
- [01:20]
Marcus
Of course, mate. Thank you guys both for being here. We start with the fact of the day. How big is a fully grown blue whale? So the largest thing.
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Daniel Konstantinovich
Pretty big on the planet.
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Marcus
It's pretty. That's the great answer. Pretty big is exact, correct, Many times. Easy with the specificity, gents. It is very. They're very, very big. Very big indeed. Actually, the blue whale, a fully grown blue whale is the same size as a Boeing 737. Next time a plane, you can just think blue whale. That's also about three school buses end to end to end. However, in terms of weight, a blue whale is 15 fully loaded school buses.
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Daniel Konstantinovich
Fully loaded. That's a fun one.
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Marcus
The length of three.
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Jacob Bourne
Fully loaded with children or adults?
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Marcus
Fully loaded with, I don't know, adults. Are they taking school buses? Maybe. Speaking of them being compared to planes, blue whale being the same size as a Boeing 737. A jet engine can reach up to 140 decibels. A blue whale can reach 180.
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Jacob Bourne
Wow.
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Daniel Konstantinovich
Step it up.
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Jacob Bourne
Well, I mean, you gotta communicate under. In the deep ocean, right? So it makes sense. You gotta.
- [02:39]
Marcus
That's true. Yeah. Make some noise down there screaming at each other. Anyway, today's real topic, Gen AI search ads versus Gen AI search subscriptions. All right, Jen, so we're talking about Gen AI search ads and maybe search subscriptions. As well, where we start to see those emerge more and more. We'll start with this. Our colleague Jeremy Goldman just wrote that OpenAI is exploring advertising as a potential revenue stream, according to CFO Sarah Friar in a Financial Times interview, as the company, valued at over $150 billion, continues to chart its path to profitability. However, Ms. Friar later told the Register that OpenAI had no immediate plans implement advertising. Going on to say that the company is placing a lot of thought around when and where we implement ads. Daniel, I'll start with you because you've written a bit about this very, very recently. Where and when will we start to see ads alongside ChatGPT?
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Daniel Konstantinovich
My guess is probably sometime in 2025. I would be surprised if it doesn't launch by the end of the year because just days after this news where the cfo, you know, let slip that they were thinking about advertising and then walked back. OpenAI made a big deal about hiring its first chief Marketing officer, which definitely signals a effort to not just market OpenAI and ChatGPT in a more meaningful way, but also potentially to bring advertising features to its products.
- [04:12]
Marcus
Yes. And you were saying that she's got very strong links to the digital ad space. It's not just some random cmo.
- [04:19]
Daniel Konstantinovich
Yes.
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Marcus
Someone who is an indicator that the advertising is definitely on the car.
- [04:22]
Daniel Konstantinovich
Yes. Her name is Kate Rouch or Roosh. I hope I'm pronouncing one of those two correctly. She worked at Meta for over a decade and at one point was the global head of brand marketing across its suite of apps.
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Marcus
Yeah.
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Daniel Konstantinovich
And before this worked at Coinbase. And while she was there, Coinbase had its big super bowl ad. So, you know, definitely someone who has elevated a tech company to, you know, a prominent world stage in terms of brand marketing.
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Marcus
Yeah. And Danny, really quick. I mean, it was interesting because you'd mentioned that we've not really seen this big consumer facing push from OpenAI. And I hadn't really thought about it too much, but they've not really been seen in all the ads telling people who they are. This is, this is how the product works, the same way that a lot of other brands do. And so I'm assuming that her hire means that we're going to start to get to know, if you will, OpenAI as a company a bit better in terms of how it fits into consumers daily lives.
- [05:24]
Daniel Konstantinovich
Yeah, I would say so. I mean, I would expect something like that from them, especially because, you know, we've seen numbers that show that use of ChatGPT is getting up there in comparison to things like Google search. And I think that they definitely want to increase those numbers. And a good way to do that is to just increase brand awareness about it. I think a lot of us consumers are probably familiar with OpenAI just because it's in the news everywhere. I'm sure a lot of people are encountering it at work. But yeah, it really is not in marketing much, you know, itself as a brand. And you're seeing a lot of companies like Apple or you know, Samsung marketing things like phones with AI features and really putting AI out there as this like big consumer feature. We'll see how much, you know, interest that generates or if consumers really bite. But I would be surprised if OpenAI is not interested in being out there in the same way since, you know, even without those big marketing efforts, I think it's pretty safe to say that OpenAI is synonymous with AI.
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Jacob Bourne
Yeah, and I think Danny, you're right about the 2025 launch for ads. I think that is when we will see it. And there's two things driving it. One is we're seeing this coincide with OpenAI's push to become a exclusively for profit company. And the other thing is it's, you know, OpenAI, like its competitors, is really struggling to meet the high costs of deploying a commercial gener AI. And of course it's setting its sights on building an artificial general intelligence which is also very expensive. And so it really needs another revenue stream to make that happen. And just for some context, I mean generative AI search deploying that costs 10 times more than deploying traditional search. And so that kind of gives you a sense of what the main differentiator here is. Wow, the $20 per month subscription model is just not quite cutting it. The $200 per month subscription I think is just people are just not pay for that intro I think is the take home there. So they need another way to make money essentially.
- [07:28]
Marcus
To your point about how much they're making, they've been able to make money from subscriptions and licensing. The API as well, and their API absolutely. Just not enough to turn a profit. CNBC's Hayden Field said OpenAI expected to post a $5 billion loss this year on nearly $4 billion in revenue. Ms. Field was also noting though that revenue is expected to jump to 12 billion next year. You'd imagine the ads are going to try and help with that. The source with knowledge of the matter was confir. So a big jump from the 4 billion that they expected to make this year. 12 next year. And to what Jacob's talking about, Angridge seeing of Axio saying OpenAI is bringing the O1 Reasoning model series out of preview in ChatGPT and is launching a new Pro tier, the One Jacob's talking about $200 a month for unlimited access to the O1 model GPT4O and the advanced voice mode. Jacob, it sounds like you don't think this is going to make much of a dent in terms of uptake.
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Jacob Bourne
Yeah, I mean certainly this is GE towards enterprise users, organizations, not individual consumers. Maybe some high powered high end users will pay for that. People will try it, but I don't see that being a real money maker at that price point.
- [08:40]
Marcus
It does seem prohibitively high. $2,400 a year for this thing. Danny, do you see OpenAI leaning heavily on the subscription side of things in the years to come? Do you see ad revenue when it does, when they do turn the taps on flooding the share of how much money they're making, but the balance between ad versus subscriptions?
- [08:59]
Daniel Konstantinovich
It's kind of hard to say because the CEO of OpenAI has historically put up a lot of resistance to advertising, you know, and is very concerned about how advertising could mess with the user experience on ChatGPT and its products. But the sort of context around turning on advertising is important to take into account because it's not just OpenAI like this is a lever that so many apps and tech companies have pulled because it is just a very easy, I suppose, way to generate revenues. You know, you have a lot of user information that you can leverage for advertising. If you have a large volume of users, you can entice a lot of companies to come on board and advertise on the platform.
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Jacob Bourne
Yeah, it's very lucrative. And I think it comes down to just the competition. I mean, ChatGPT is the most popular generative AI platform, but there are so many. And so people will want some variety in terms of the kind of generative AI tools they can use and aren't going to want to pay a $20 subscription for five different platform. Yeah, and so ad revenue gives people the sort of flexibility to create a free account and then use different tools from different providers.
- [10:06]
Daniel Konstantinovich
Yeah, and I think moves from some competitors have shown that there is interest in AI advertising in its many forms, whether that's using AI to create advertisements to target people or appearing next to AI search results, for example. And as much as, you know, Sam Altman might have a personal distaste for ads, the market pressure against these companies to show, show that there is a mass product here and an opportunity for significant revenues is going to force OpenAI down this road eventually, no matter how people at the very top feel.
- [10:43]
Jacob Bourne
You're absolutely right. I mean Wall street is just really looking for clearer evidence of monetization of generative AI. They've grown more skeptical of generative AI capital expenditures. And OpenAI certainly with this relationship with Microsoft, is one of the players that they're scrutiny you over on that front. So it's almost a certainty at this point that we're going to see OpenAI and others launch ads on their platforms and rely heavily on it, on that revenue.
- [11:11]
Marcus
We've seen, yeah, I mean we've seen a couple of examples of that.
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Jacob Bourne
Right.
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Marcus
So others starting to implement gen AI ads. Ben Sherry of Inc. Noting that AI search engine Perplexity recently began experimenting with sponsored follow up questions. Meaning if you were to search help me find a job, for example, the chat box, what could suggest that you next ask it how can I use indeed to enhance my job search? And then Zach Stambor, our colleague, writing about how Amazon has quietly begun to weave sponsored ads, it's core search ad format, into Rufus, its Genai powered chatbot. It launched earlier this year. So shoppers might ask what gear do I need to go camping in the fall? And would get Patagonia jacket recommendations, REI camping stoves. Jacob, what do you make of these examples and others?
- [11:55]
Jacob Bourne
Yeah, I mean this is just further evidence of what we're saying. I mean there's Google with its AI overviews, they have ads. Microsoft added ads to its co pilot Perplexity with its sponsor follow up questions. It's the industry trend now to explore this. I think another interesting player to note is actually Meta, though in a different way. Meta just recently said that its AI assistant reached 600 million active monthly users and it's a free AI assistant to use. But the notable thing about it is it's integrated into its existing platforms and so the monetization there is on the existing social media platforms which serve ads. Right. And so Meta doesn't necessarily have to monetize its AI assistant directly because there's already that happening with the greater ecosystem where AI Assistant is just basically to serve as a product enhancement. And it's kind of demonstrating indirectly that it's finding some success in terms of more time spent on its platforms because of that. So it's kind of sort of an indirect way to sort of monetize generative AI that I think is pretty viable. You know, I think the big takeaway from all these different players doing this is that players like Google and Meta are really going to have an advantage out the gate in terms of integrating ads into generative AI just because they already have that advertising framework well established. They have, they've established trust with, with, with brands in a way that, you know, Perplexity and OpenAI, you know, have not done. And so I think although long term ads are going to be a big revenue driver for OpenAI and you know, a player like Perplexity, I think it's going to take them some time to get there because they have to really, you know, build up that framework and that trust in the industry.
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Daniel Konstantinovich
I think there are a couple interesting things about what you just said, Jacob. The AI assistance, personal assistance, this is a feature that's cropping up everywhere. You know, Reddit is also adding this. Yelp just announced that it's going to do a similar thing. And I think you should look at those launches as something that could eventually be a vehicle for advertising. Like any place within a platform that a consumer is directly interacting or interfacing with AI and knows that that's what they're doing, that is a potential place for advertising. The other thing that I think is really interesting is Google. So Google has its AI overviews. You know, these AI generated summaries of the search results at the top of the page and it has launched advertising for the AI overviews in some capacity and I'm sure we'll roll it out more broadly and it's attracted some interest. You know, we don't have numbers about how, how much has been spent on this or how many advertisers are using it or anything like that. But I think the thing that makes it really interesting is the question of our marketers interested in this because it is AI and because it has some kind of unique angle to it that they can tap into. Or is it because it's the most prominent real estate on Google search? I'm not sure where I fall on, on that question. I mean, it is now the top thing that shows up in most Google results, which is very sought after ad space that Google can sell. So, you know, is interest in AI overviews, ad placements reflective of advertiser interest in appearing next to AI in general? I think it's tricky to say.
- [15:29]
Jacob Bourne
Yeah, I mean, just to take a stab at that, Danny, I'd say it's the prominence of the AI overuse. It's really the draw there because I think that this is sort of an experimental thing. I mean, there's a lot of risk too in terms of AI hallucinations and being able to maintain brand messaging alongside AI responses. So there's some risk there, but I think they're willing to take that risk because of the prominence and just the interest in AI overall. Is this my guess?
- [15:58]
Marcus
We started by talking about the kind of where and the when AI search ads show up. It really, really matters. In Freedom, Access was making the point that a chatbot turned salesman could be both lucrative and annoying. An AI companion that sneaks in a sponsored message or an AI agent that makes choices for you based on ad dollars could be predatory. And so given everything we've talked about, Jacob, I'll start with you. What kinds of gen AI ads will be the most impactful? What are the things folks need to keep in mind when they're rolling these things out or when they're buying ads on these platforms?
- [16:31]
Jacob Bourne
Two examples. I mean, I think Perplexity's sponsored follow up questions is a really impactful way to introduce it. The questions are, first of all they're relevant to the initial prompt and so that will, I think, ensure user engagement. But it's also non intrusive because it's not part of the output itself. It's kind of shown separately, so it's not really part of the chatbot's core response.
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Marcus
Interesting.
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Jacob Bourne
Another thing about it is that Perplexity said that it's not going to share data, which could be reassuring for some users who were concerned. And I think the final thing, which is sort of maybe a double edged sword, is that the sponsored follow ups are actually AI generated, they're not generated by advertisers. So that could create some concern for advertisers. But I think the way that Perplexity is doing is probably the least intrusive and so it'll be interesting to see if it can actually get advertisers to spend money on its platform. So that'll be the key thing. But then going back to Meta Meta is having the monetization already baked in with its existing products, I think is, I mean it's really the ideal solution that others really can't replicate in the same way necessarily. But having that revenue stream there, while not necessarily having to incorporate it closely to the generative AI output is probably ideal from a risk perspective.
- [17:56]
Marcus
Right, Right. Danny? I keep thinking about how advertisers, they can't be running faster on AI than consumers can keep up though, right? Like the share of some data points here, share of brands willing to advertise alongside AI generated content went from 33 to 57% in the past year, according to Advertiser perceptions. However, only 35% of US adults are comfortable with AI generated content in advertising. Civic science. So advertisers have got to make sure that they're bringing consumers along for the ride. Because even though they're used to ads being on platforms where they're looking for things, it's a new type of experience.
- [18:34]
Daniel Konstantinovich
It is a new type of experience and exactly how consumers feel about it or will feel about it or will choose to interact with it is still pretty unclear. And you know, something that I feel is also worth mentioning is that there is a real lack of rules and regulations around AI and advertising. In AI, regulators are very slow to catch up to the pace of this. You know, we've seen numbers that show that consumers tend to feel more negatively about advertisements when they know that AI has been involved in some capacity. But those same consumers are also not great at identifying when an advertisement, you know, is AI generated or had AI involved in it. So if you are a platform like Google or Meta or whatever, or a brand that's using AI to advertise in some capacity, you know, that gives you an incentive to not necessarily disclose that. I think that raises some questions. Like if you're a consumer, you know, the way that your ad experience and the information that you get online could be affected even without your knowledge, I think is concerning. And I'm sure it's also concerning to some extent for advertisers too because you know, you don't want to use AI, not disclose it, and then, you know, have it found out that like, you know, you are in a X amount of money partnership with Google or whatever, you made this ad with AI and said that it wasn't or something like that. Like, yeah, for now. We've seen brands very publicly disclosing when they're doing this. And you know, to the credit of these big platforms, there are disclosures when there's like an AI sponsored response, at least in Google AI overviews. So we're not seeing like a backing away from that at the moment. But you know, the temptation exists.
- [20:23]
Marcus
Yeah, transparency is going to be key. And I want to end here with something that Zach Stamble, one of our colleagues I mentioned earlier, said, basically saying there's gonna be somewhat of a learning curve. He said, quote, gen AI powered chatbots are still in their early days and consumers aren't used to seeing advertising integrated into the responses to their queries, but they are used to seeing ads in their search results both on search engines and retailers websites. That's why they're likely to see advertising within a chatbot as a natural extension of search ads. However, execution matters. He says ads that are well labeled, well integrated and relevant are more likely to drive strong results and avoid blowback. But consumers may grow frustrated if they can't distinguish, Daniel, what you're saying between an ad and a natural result or if the ads aren't relevant.
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Jacob Bourne
Well, I just want to say, you know, we've talked all about, you know, the ad format, but I think the subscription format, while might reduce in relevance or prominence, I should say, is still going to be, it's still going to be around. They're going to be generating revenue certainly from it. But I think that the focus there is really going to be on niche use cases or topic areas like academia. Enterprise users, I think are going to gravitate towards the more, you know, the subscription based platforms and models.
- [21:42]
Marcus
So yeah, a great final thought. Thank you so much, gents for being on for today's show. So we've got time for. Thank you. First to Jacob.
- [21:50]
Jacob Bourne
Thank you, Marcus, thanks for having me.
- [21:51]
Marcus
Yes, sir. Thank you to Danny.
- [21:52]
Daniel Konstantinovich
Thank you. Always a pleasure.
- [21:54]
Marcus
Yes, indeed. Thank you to Victoria who edits the show, Stuart runs the team and Sophie does on social media. Thanks to everyone for listening in. We hope to see you tomorrow for something. What is it? Weekly Listen. That's what we hope to see you for. We hope to see you tomorrow for the behind the Numbers Weekly Listen, a new marketer podcast made possible by Live Ramp.