OpenAI is just a few months into its ad monetization program and is in early stages of feeling out the right models. This has naturally led to some blowback from brand advertisers who are accustomed to doing things differently. Though these growing pains are evident, it’s likely that OpenAI will figure it out.
Before going into points of resistance, what are we talking about here? OpenAI announced in early Q1 that it will begin testing ads in ChatGPT. Ads appear at the bottom of user chats as small text and image ads that resemble paid search ads. This is meant to diversify OpenAI’s revenue (more on that in a bit).
As for the friction in the ads program, there are a few reasons. First is the program’s $200,000 minimum campaign spend to participate. Second, ads are sold on an impression basis, as opposed to a cost-per-click model. Third, OpenAI is charging a $60 CPM, which is fairly steep in online ad terms.
The biggest objection among these factors is the second one, simply because there’s little analytics involved. When ads are sold on a click basis, as with Google’s paid search programs, there’s a more dimensional sense of performance that’s inherent in click streams, as opposed to ad impressions.
Trust Issues
For further context on OpenAI’s ad program, a few formats are available so far, that will evolve over time. They’re primarily targeted at the topic being discussed (contextual) and user history (behavioral). Ads are shown to all ChatGPT users except subscribers of the $200/month Pro plan.
Here are the main ad format so far:
- Sponsored Recommendation box: Ads appear below the organic response in a tinted box that’s labeled as sponsored.
- Contextual links: These are more atomized and integrated ad units. They take the form of citations that are in or near organic answers. Though they’re infused closer to the organic content (such as a link next to a brand name that happens to be mentioned in the organic answer), they’re labeled as sponsored to maintain a church/state separation.
- Bazaar Carousel: In the case of shopping-related queries, OpenAI is testing a carousel of products that let users scroll horizontally without leaving the chat. Like the above, and in all cases of ads, OpenAI specifies that sponsorship is always clearly labeled as such.
Users have some control over the ad experience, says OpenAI, such as the ability to dismiss any single ad. They can also see explanations for why they’re being shown a given ad, which is likely a way to avoid creeping people out – a smart move for a technology already plagued by trust issues.
OpenAI is also making moves to preempt further trust issues by stressing that ChatGPT will maintain “answer independence.” That’s a fancy way of saying that stepping into the world of ad support doesn’t mean that organic answers given by ChatGPT will be sponsor-influenced. Again… trust issues.
Land Grab
But more interesting than the what is the why. The move into ads surprised a lot of people due to Sam Altman’s outspoken attitude on ad monetization. Referring mostly to Google, he has said that sponsored results in any search or AI engine erodes trust in underlying objectivity… hence its disclaimers above.
But a lot can change in the fast-moving AI land grab. Among other things, OpenAI has billions in well publicized CapEx commitments to fund. It has also faced declining growth rates for ChatGPT paid users. With slowing subscription revenue, markets have become uncertain about its ability to be profitable.
All of this is particularly relevant in light of a potential IPO. In that sense, it’s not surprising that OpenAI would need to build a stronger business case to take on the road. Ad revenue would diversify revenue and build a more stable business case to prospective underwriters and public-market investors.
Back to the growing pains in its ads program, OpenAI wants to get those out of its system now, so that they don’t hang over its IPO road show. Coming full circle, it’s likely that OpenAI will naturally gain some competence in the art of online advertising as it learns by doing. That’s what we’re seeing play out now.
