Perplexity wanted to make Google obsolete. What now?
At a crossroads, the AI search engine abandons advertising
Perplexity AI had wanted to be the first generative-AI company to venture into advertising. But barely a year and a half after its first “experiments,” the start-up has thrown in the towel, the Financial Times reports. Officially, its executives cite fears that introducing ads could erode user trust. Behind the scenes, however, the push quickly ran out of steam, undermined by strategic missteps, high prices, and returns on investment that advertisers found far too uncertain.
While not entirely surprising, this retreat comes just as OpenAI is conducting its first advertising tests on ChatGPT. More broadly, it highlights the crossroads facing the U.S. company that, at launch, promised to make Google “obsolete.” Not only have its attempts to unlock new growth drivers failed to deliver the expected impact, but the very relevance of its value proposition may now be called into question, as the initial enthusiasm fades.
Declining audience
Founded in 2022, Perplexity long stood apart from other chatbots thanks to how it worked. Unlike early versions of ChatGPT, its service did not merely draw on a fixed training corpus. Instead, it searched the web in real time, then produced a synthesized answer citing multiple sources. In theory, this approach limited the hallucinations common to large language models. But that differentiation has disappeared: online search has become a standard market feature rather than an exception.
More importantly, Perplexity built itself largely in opposition to Google, arguing that traditional blue links were obsolete in the age of AI. Since then, the search giant has struck back. It rolled out “AI Overviews” above classic results to answer certain queries, and launched an “AI mode” that mirrors chatbot interfaces for longer, more complex questions. While the start-up claimed 780 million queries per month in May (compared with roughly 14 billion searches per day on Google), its traffic has been declining for several months, according to data from SimilarWeb.
Sponsored questions
Perplexity never hid its intention to add advertising to monetize its free version. The start-up offered two formats. The first was conventional: video ads displayed on the side depending on the user’s query. The second was more novel, allowing brands to sponsor suggested questions shown beneath the answer. Unlike Google, Perplexity charged by impressions rather than clicks, asking more than $50 per 1,000 views — a premium rate by market standards.
The company also hoped advertising would fund a revenue-sharing program with media groups that have accused it of plagiarizing their content. But these efforts appear to have stalled at the pilot stage. Early advertiser feedback was far from enthusiastic, criticizing the format, the billing model, and the lack of performance data. Last summer, the head of advertising left the company. Shortly thereafter, the signing of new ad contracts was suspended.
Revenue surge
Last year, Perplexity AI also bet heavily on the launch of Comet, an AI-native web browser. The start-up said that “millions” of users had joined the waiting list. Initially reserved for subscribers paying $200 per month, access was eventually opened for free in the fall. After the novelty wore off, however, Comet has remained a niche product — especially since OpenAI has launched its own browser, and Google has begun rolling out Gemini inside Chrome, by far the world’s most widely used browser.
Despite these challenges, Perplexity claims a sharp acceleration in its business, with $200 million in annual recurring revenue, mostly from subscriptions, according to the Sources newsletter. The company has also stepped up fundraising, raising $1.3 billion since December 2024. Part of that capital is earmarked to pay the creators of the models powering its service. And $400 million will be paid to Snapchat simply to become the app’s default AI engine — a bet aimed at expanding its audience.