This month, Whole Foods, McCann, and PMG will launch ads on Perplexity AI. However, many others are hesitant, questioning whether the investment is worthwhile—at least for the time being.
Their hesitancy stems from two main causes.
First, there’s the lawsuit NewsCorp filed against Perplexity AI in October, which isn’t ideal for optics.
According to one of eight ad executives interviewed by Digiday, “Clients are completely concerned about their association with the platform and do not believe the opportunity is worth the association at this time.” They are pleased about another opportunity to interact with marketers that are looking for in-category information but do not want to be first.”
The other, and maybe more serious, concern is the pitch for those advertisements, which will show as sponsored follow-up questions alongside replies, as well as their high rates. Three executives questioned by Digiday for this report said they had seen CPMs ranging from $30 to $60 – exorbitant amounts for an experimental platform.
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To compare, Ryan Bopp, senior vice president of digital strategy at Eden Collective, stated that Netflix debuted their ad offering with CPMs in that range or higher. “They’ve [since] been lowering their CPMs to replenish their inventory. So getting a full 30-second screen takeover on a CTV ad for the same amount as a display and sponsored inquiry or sponsored prompt [on Perplexity AI] is quite excessive. A display ad in extremely premium space out there costs roughly $7.”
However, according to Chad Stoller, chief innovation officer at Universal McCann (a Perplexity agency partner), innovation and hence pricing are not always immediately measurable.
Even for those marketers who can afford the fee, there’s another stumbling block: Perplexity AI’s advertising are sold on CPMs rather than CPCs, which is odd considering the company’s status as an AI-driven search engine. Many marketers are puzzled by the decision.
“When we read between the lines, it means that people will likely not click out from their experience vs traditional search,” according to a search expert. “A CPM approach lends itself to brand advertisers and sponsorship, which is not how search is acquired today. Search advertisers want a click-based solution that allows them to model performance, but this is not yet accessible.
In other words, it is a dangerous move. Awareness programs are notoriously tough to quantify, and marketers need predictable results, especially as the year nears its end.
“That concerns me, because the digital business models that have proven most successful over time are performance-based,” said Debra Aho Williamson, founder and chief analyst at Sonata Insights. “Think of Google and Meta, the world’s two largest digital media firms. Both use performance advertising as its primary revenue model. Companies who began with a premium / brand awareness strategy have failed to maintain momentum.
In response to questioning about these concerns, Perplexity AI stated that it considers some of them “inaccurate” and invites “brands and agencies to connect with us one-on-one to learn more rather than defaulting to broad speculation.”
However, some marketers will recognize the benefits. Positioning Perplexity AI as a “answer engine” designed to address user inquiries directly, rather than redirecting visitors like traditional search engines do, might make it an appealing tool for brand building and user engagement in a congested market.
“They’re [Perplexity AI] actively discouraging advertisers from thinking in terms of ‘clicks,’ and stressing that there will need to be a lot of trust and comfort between early advertisers and Perplexity given the nascency of their pilot experience,” added Michelle Merklin, vp of paid search innovation and growth at Tinuiti.
This posture is unlikely to remain static indefinitely. Performance advertising may not be implemented immediately, but they are not out of the question. The company has already been testing Buy with Pro (a proprietary mechanism that allows users to purchase things straight from queries within their feed) with a small group of customers, but it is anticipated to be made available to all U.S. Pro users shortly.
“Perplexity could easily roll out ads that link to purchase opportunities, either within Buy with Pro or ads that redirect to retail partners,” according to Williamson.
On the other hand, Universal McCann has already seen past these concerns and is willing to be one of the first to test the advertisements, albeit he did not divulge success rates. Stoller believes that Perplexity’s capacity to deliver context and transparency can assist marketing communications reach captive audiences.
For the time being, the majority of marketers will do what they typically do when new platforms approach them: observe and wait before opening their wallets.
“An advertiser in Q4 is often looking for scale,” said Horizon’s executive vice president of performance media, Michael Cohen. Perplexity AI currently lacks scalability. “Especially if you’ve had to cut back on spending in specific areas due to high costs associated with competing with election commercials. And you have one less weekend to sell between Black Friday, Cyber Monday, and Christmas.”
What Perplixity performs following this quarter will be a true test of its capacity to create and grow an advertising business.
Building from within.
While four ad executives confirmed to Digiday that they had spoken with Andrew Beck (head of strategic business development) as the primary go-to-market contact for Perplexity AI’s new ad offering, and he was the frontman for the platform’s Ad Week New York presentation about its proposition, Beck is still new to the role (he joined three months ago) and lacks ad sales experience. According to his LinkedIn profile, Beck’s previous responsibilities at GoPuff, RideOS, and Uber were all in business development. Perplexity AI did not make him available for comment.
Given their emphasis on business development, neither do the other four business-side executives listed on LinkedIn as Perplexity AI workers. As for future additions to that team? There is one job for a “head of enterprise customer success” on its business team, but no ad sales executive positions.
“It makes me wonder how successful they will be at selling ads unless they have an ad sales leader who knows the ad industry well,” said one industry executive who preferred not to be identified. “Maybe they’re searching for one?”
Even the most experienced players struggle to navigate a complex and congested advertising industry. Newcomers, such as Perplexity AI, will need time to gain their feet, although necessity may speed up the process. After all, funding a technology business is expensive, often necessitating profit compromises in order to expand. If done correctly, advertising could provide a high-margin solution to alleviate some of the financial strain.
As a result, the team must secure early support from sponsors. According to Robert Kurtz, group vp of search media solutions at Basis Technologies, early advertisers have direct access to the Perplexity AI team as well as input on the product roadmap and insights.
Especially if key measures continue to move in the right direction. Marketers are creatures of habit, and their advertising money follow attention — which Perplexity AI’s unique take on search is capturing. According to digital market intelligence company Similarweb, Perplexity AI had 1.1 million monthly active users (MAUs) in the United States and 965.6K in the United Kingdom across iOS and Android in October. Additionally, as of October, Perplexity AI’s website received 90.8 million hits, a 199.2% increase over the same month in 2023.
“Our approach to advertising is a paradigm shift, so we operate outside of the typical processes for brand advertising,” Perplexity AI stated. “We believe the right brand partners will see our approach as a powerful demand-generation mechanism that augments other tactics.”
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