Inside Perplexity AI's softly, softly approach to advertising

• Perplexity AI is cautiously growing its ad business.
• Its main ad product is 'sponsored follow-up questions,' and it recently introduced a perks program.
• Perplexity has a revenue share program with publishers, but its ads business is still nascent.

Perplexity AI is taking a softly, softly approach to building its ad business.

The AI company had a low-key presence at last month's Cannes Lions ad festival in France. Amid the huge multimillion-dollar beach structures erected by tech giants like Meta, Amazon, and Google, Perplexity sent just a handful of executives to meet with current and potential business partners.

Perplexity, a conversational AI-powered search engine, began testing ads last year. Brands such as Whole Foods and Indeed have bought "sponsored follow-up questions," which appear alongside an answer to a user's prompt, encouraging them to dig deeper into the topic. Advertisers themselves don't write or edit the sponsored questions, which are generated by Perplexity's AI.

It's a contrast to traditional search engine marketing, where ads typically appear before the organic results.

Speaking to Business Insider at Cannes Lions in June, Ryan Foutty, Perplexity's VP of business development, said the company is still figuring out which advertising model will work best.

He described sponsored follow-up questions as "a really incredible brand advertorial."

"It's additive because you're helping users figure out the next question they need to ask to make a better decision or figure out what they're trying to do versus just trying to put something in your face," Foutty said, adding that 40% of its users click on related questions.

Perplexity advertisers pay on a CPM, or cost to reach a thousand impressions, model. A Perplexity spokesperson said advertising currently comprises less than a tenth of a percent of the company's total revenue, and declined to comment on the company's current ad prices.

In recent weeks, Perplexity has also introduced a perks program, where it provides subscribers to its Perplexity Pro service with offers and discounts from brands including Turbotax, the smart ring company Oura, and hotel booking service Selfbook.

Both Perplexity ads and perks are only active in the US. Foutty said the company was also considering more ways to monetize Perplexity's shopping and travel booking features, which could theoretically include further ad formats.

"It's very manual today," Foutty said, "But when we find something that works for everyone, then it's very easy, naturally, for us to scale it."

Perplexity hasn't released its user numbers, but its CEO, Aravind Srinivas, said the company received 780 million queries in May, up 20% from April. But compare that to Google's AI Overviews, which the search giant said reached 1.5 billion monthly users in May. Google recently brought advertising to more areas of its AI Overviews product, and it's testing ads within its AI Mode, a newer feature where users can conduct deeper research.

With its relatively small scale and only one specific ad format available, Perplexity's advertising offering is only getting tepid interest from marketers for now, said Eric Hoover, director of search engine optimization at the digital marketing agency Jellyfish.

"I don't see strong adoption by users," Hoover told BI. "People rarely click out of 'regular' AI results; I don't see them being eager to click on sponsored ones."

Perplexity wants to build 'long-term incentive' deals with publishers

Perplexity shares a portion of its ad revenue with the publisher partners it uses to help source its answers, which include Time, Fortune, and Der Spiegel.

The company doesn't cut up-front licensing deals with these publishers because it isn't building foundational large language models that require content for training, Foutty said. It does offer these partners access to its enterprise product and APIs that can help publishers embed Perplexity's tech, like conversational search, into their own sites. (Disclosure: Business Insider's parent company, Axel Springer, has a multi-year content licensing deal with Perplexity rival OpenAI.)

"The model that we're creating on the revenue share side is a long-term incentive," Foutty said. "It's not a one-and-done."

When asked whether any publishers were making serious money from the program, Foutty said it was still early days. The publisher program launched in June of last year.

"We're focused on building the right product before we scale it to everyone," he added.

The relationship between AI companies and publishers can often be fraught, and many are locked in legal battles. Rupert Murdoch's Dow Jones and the New York Post filed a lawsuit last year alleging that Perplexity engaged in copyright infringement by scraping and using their content. Perplexity said last year that the facts alleged in the complaint were "misleading at best" and that it planned to defend itself.

This week, the content delivery network and security provider Cloudflare announced it has begun automatically blocking AI crawlers from scraping the websites it powers unless site owners explicitly opt-in or the AI companies pay.