of all the takes that age terribly, “dont put ads in a consumer product” is probably the one that’s most guaranteed to make you look sanctimonious and self-righteous in retrospect. every single great consumer internet product and platform with >1bn users delivers some form of ad unit, because that’s how you scale a product to the largest group of people possible. ads are, quite literally, why we can have nice things.
and so it shouldn’t have been a surprise that back in jan / feb the following things happened 1) openai announced they were rolling out ads to subsidize their enormous base of free users 2) a bunch of people tried to paint this as a bad thing. now, with the benefit of ~240 days of hindsight, we can audit just how ridiculous this kneejerk reaction was.
as of august, oai has ~$1bn in arr for their ad product. in this podcast recorded for the 7th edition of the top 100 consumer ai apps leaderboard, i sat down with
@omooretweets, author of the bi-yearly report, and
@joshelman, to discuss why ads remain such an important part of the consumer experience, and why subscriptions can only take us so far. some takeaways:
- the subscription market is a peculiar slice of the consumer market. olivia's yipit panel suggests around 4.5% of US consumers pay for an ai subscription, and spending is concentrated in people using it to build, create, and get work done.
-a founder who needs every user to pay has a strong reason to keep building for that audience (a rather circumscribed group of people who value saving time over spending it). advertising creates room to serve people with different interests and willingness to pay. developers / creators who view ai as a way to get leverage over their lives is an important group of paying subscribers, but a smaller cohort compared with people who view ai solely as a source of information or mild entertainment for now.
- josh pointed out that ai companies can become afraid of growing too fast because every new user brings meaningful expense (this explains why, for example, meta seems to be pushing muse a little less aggressively than a product like threads, which cost far less marginally to serve to users). but as inference gets cheaper, ads and transaction fees can support more of the experiences people might want to try.
- josh found its ads useful while planning a trip. olivia thinks the context people supply could make the advertising more effective. that creates a product-design opportunity: help someone find what they want, with the sponsorship made overt and a clear value add.
- a valuable audience doesn't have to be everyone. olivia points to openevidence's early success with advertising among doctors. specialized ai products can gather audiences whose shared needs are useful to particular businesses. there is room for companies with much more focused purposes than a general assistant.
i think this is why the ads question matters beyond oai’s revenue. the business model helps determine who gets products built for them. ads are what enable ai to get built for everyone.