Perplexity AI Tests Subtle Advertising Model at Cannes Lions, Prioritizing User Experience Over Intrusion

Perplexity AI, a company known for its conversational AI-powered search engine, is adopting a cautious and subtle approach to developing its advertising business. Unlike tech giants like Meta, Amazon, and Google, which often showcase their presence with large, multimillion-dollar structures at events like the Cannes Lions ad festival, Perplexity sent only a few executives to meet with current and potential business partners. This low-key strategy aligns with the company’s overall approach to advertising, focusing on user experience and minimal disruption. Perplexity began testing ads last year, introducing a unique format called "sponsored follow-up questions." These questions, generated by the company's AI, appear alongside organic results and encourage users to explore the topic further. Advertisers, such as Whole Foods and Indeed, don’t create or edit the sponsored questions, ensuring they remain natural and helpful. Perplexity’s VP of business development, Ryan Foutty, described this format as an "incredible brand advertorial" that adds value by guiding users to more relevant information. He noted that about 40% of users click on these related questions, indicating a good level of engagement. The ads are currently priced on a CPM (cost per thousand impressions) model, although specific rates have not been disclosed. As of now, advertising contributes less than a tenth of a percent to Perplexity’s total revenue, and the ads and perks programs are available only in the United States. Perplexity has also introduced a perks program for subscribers to its Perplexity Pro service, offering discounts and benefits from brands like TurboTax, Oura, and Selfbook. Foutty indicated that the company is exploring additional ways to monetize its shopping and travel booking features, though he emphasized that the process is still largely manual. The goal is to find a model that works for all stakeholders before scaling it up. Perplexity’s CEO, Aravind Srinivas, reported a significant increase in user queries, reaching 780 million in May—a 20% jump from April. However, this number still lags far behind Google’s AI Overviews, which reached 1.5 billion monthly users in May and has recently expanded its advertising offerings. The tepid interest from marketers can be attributed to Perplexity’s limited scale and the novelty of its ad format. Eric Hoover, director of search engine optimization at digital marketing agency Jellyfish, observed that users rarely click on regular AI results, let alone sponsored ones. This highlights the challenge Perplexity faces in driving strong adoption and engagement with its advertising strategy. To build stronger relationships, Perplexity shares a portion of its ad revenue with publisher partners, including Time, Fortune, and Der Spiegel. Instead of upfront licensing deals, the company offers these partners access to its enterprise product and APIs to integrate Perplexity’s conversational search capabilities into their own platforms. Foutty explained that this model is designed to create a long-term incentive rather than a one-time transaction. However, the relationship between AI companies and publishers has been contentious, with several legal battles over copyright infringement. Perplexity itself faced a lawsuit last year from Rupert Murdoch’s Dow Jones and the New York Post, alleging that the company scraped and used their content without permission. Perplexity responded by denying the allegations and stated its intention to defend itself. This week, Cloudflare, a content delivery network and security provider, announced it will begin blocking AI crawlers from scraping websites unless site owners explicitly opt-in or the AI companies pay, adding another layer of complexity to the data acquisition landscape. Despite these challenges, Perplexity’s strategy is gaining attention in the industry. The company’s focus on user-friendly and minimally disruptive advertising formats, combined with its revenue-sharing model, could potentially address some of the concerns raised by publishers and users alike. If successful, this approach could set a precedent for how emerging AI companies navigate the complex and evolving advertising ecosystem.