OpenAI Notches $1 Billion Ad Milestone
OpenAI has been slowly introducing ads to users’ chat boxes since launching them less than a year ago, but the reaction has been mixed.
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OpenAI thinks it’s on pace to make $1 billion in revenue from its ad biz annually. The AI company said Monday its annualized revenue run rate hit $1 billion in less than 200 days since it started serving ads.
Annualized revenue run rate is an inside-baseball term that doesn’t mean OpenAI’s ad unit will for sure make $1 billion annually — but it could. While OpenAI said in April it expected to make $2.5 billion from ads this year, it still touted the $1 billion rate yesterday as a milestone for its diversified business model. The company is continuing to expand access for advertisers in more countries to buy ad space next to sage ChatGPT advice like “You’re absolutely right! You should get bangs.”
History Repeats Itself
Ads drive the vast majority of revenue for search and social media companies that rose to prominence around when AI was a digital mom in Smart House. About 98% of Meta’s total revenue comes from ads. The biggest piece of Alphabet’s revenue pie comes from ads as well, though its share is waning as the company’s cloud unit grows.
OpenAI has been slowly introducing ads to users’ chat boxes since first launching them less than a year ago. But its place in the digital-ads world has drawn some side-eye:
- Anthropic touted in its Super Bowl commercials that its Claude chatbot will remain ad-free, a not-so-subtle dig at OpenAI. The company wrote in a blog that the nature of many of its users’ conversations with Claude is “deeply personal” and ads in that context would feel “incongruous” or “inappropriate.” Perplexity meanwhile briefly tested ads before scrapping them.
- Advertisers, meanwhile, grew frustrated this spring with OpenAI’s slow rollout of advertising, per CNBC, and high costs. While OpenAI’s ads could pull directly from advertisers’ budgets for other platforms like Google and Meta, advertisers see AI-chatbot ads as a new and untested format that, for now, comes at a relatively high price.
Freemium: OpenAI’s fast-growing ad segment could support its other revenue sources, like consumer and business subscriptions, and make what’s expected to be a massive IPO more palatable to investors. Ads may be especially integral for OpenAI, since many ChatGPT users have free accounts. OpenAI’s focus on diversified revenue could also help shore up its revenue from the volatility its tech peers have experienced tied to marketers’ fluctuating budgets. Whether consumers will put up with ads while they’re consulting ChatGPT about their recent breakup, though? That’s TBD.
