First, there’s the lawsuit that NewsCorp brought against Perplexity AI in October, which isn’t too great for optics.

As one of eight ad execs Digiday interviewed put it: “Clients are 100% concerned about association with the platform and do not view that the opportunity is worth the association at the moment. They are excited by another offering to connect with advertisers who are looking for in category information, but did not want to be first.”

The other, and arguably more pressing issue, is the pitch for those ads, which will appear as sponsored follow-up questions alongside answers, and their expensive rates. Three execs Digiday interviewed for this article suggested they’d seen CPMs ranging from $30 to $60 — eye-watering rates for an untested platform.

To compare, Netflix launched its ad offering with CPMs in that range and higher, noted Ryan Bopp, svp of digital strategy at Eden Collective. “They’ve [since] been pulling their CPMs down to fill their inventory. So when you’re getting a full 30 second screen takeover on a CTV ad for the same price as a display and sponsored question or sponsored prompt [on Perplexity AI], it feels very disproportionate. A display ad in really premium inventory out there, you’re paying around $7.” 

But according to Chad Stoller, chief innovation officer at Universal McCann (which is an agency partner of Perplexity), sometimes innovation, and thus pricing, can’t be measured right away.

Still, even for those marketers could stomach the price, there’s another hurdle: Perplexity AI’s ads are sold on CPMs, not CPCs — a surprising move given its status as an AI-powered search engine. The decision has left many advertisers scratching their heads.

“When we read between the lines, it means that people will likely not click out from their experience vs traditional search,” said the search specialist. “A CPM model lends itself to brand advertisers / sponsorship, which is not the method to which search is bought today. Search advertisers expect a click based offering where they can model performance, but this is not available today.”

In other words, it’s a risky play. Awareness campaigns are notoriously difficult to measure, and marketers crave predictable outcomes, especially in the year’s final stretch.

“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 Google and Meta — the two largest digital media companies in the world. Both have performance advertising as their core business model. Companies that launched with a premium / brand awareness model have struggled to maintain momentum.”

In a response to questions about these concerns, Perplexity AI responded in a statement that it viewed some of them as “inaccurate” and welcomes “brands and agencies to connect with us one-on-one to learn more rather than defaulting to broad speculation.”

Still, some marketers will see the upside. Positioning Perplexity AI as an “answer engine” designed to solve user queries directly rather than redirect users like traditional search engines could make it a compelling tool for brand-building and user engagement in an overcrowded market.

“They’re [Perplexity AI is] actively discouraging advertisers from thinking in terms of ‘clicks,’ and stressing that there’s going to 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 stance isn’t likely to remain static forever. Performance ads may not be in play immediately, but they aren’t off the table. The platform is already testing Buy with Pro, a proprietary tool that lets users purchase products directly to queries within their feed.

“Perplexity could easily roll out ads that link to purchase opportunities, either within Buy with Pro or ads that redirect to retail partners,” Williamson added.

On the flip side, the likes of Universal McCann has already seen past these issues, and was willing to be one of the front runners to try out the ads, though he did not share figures of success. Stoller said he believes Perplexity’s ability to provide context and transparency could help reach captive audiences with brand messaging.

For now, the majority of advertisers will do what they always do when new platforms court them: watch and wait before opening their wallets.

“An advertiser in Q4 is often looking for scale,” said Michael Cohen, evp of performance media at Horizon. And scale is something Perplexity AI doesn’t have right now. “Especially if you’ve had to pull back and spend in certain ways because costs were high as a function of competing with election ads. And you’ve got one fewer weekend to sell between Black Friday, Cyber Monday weekend and Christmas.”

What Perplixity does after this quarter will be the real test of its ability to build and grow an ads business. 

Building from within 

While four ad execs confirmed to Digiday that they’d spoken with Andrew Beck (head of strategic business development) as the primary contact for go-to-market about Perplexity AI’s new ad offering, and he was the frontman for the platform’s Ad Week New York presentation about its proposition, he’s still relatively new to the role (having only joined three months ago), and doesn’t have an ad sales background. According to his LinkedIn, Beck’s prior roles over the last decade across GoPuff, RideOS and Uber were in business development. Perplexity AI did not make him available to comment.

Nor do the other four business-side execs, as listed as Perplexity AI’s employees on LinkedIn, given their focus on business development. As for further hires to that team? There is one opening for a “head of enterprise customer success” within its business team, but no ad sales exec opportunities.

“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 exec who preferred to remain anonymous. “Maybe they’re searching for one?”

Navigating a complex and crowded ad market is challenging for even the most seasoned players. For newcomers like Perplexity AI, it will take time to find their footing, but necessity might accelerate the process. After all, funding a tech business is costly, often requiring sacrifices in profit for growth. Done right, advertising could offer a high-margin path to ease some of that financial strain.

Which is why it’s important for the team to get buy-in from advertisers early on. And those early advertisers, according to Robert Kurtz, group vp of search media solutions at Basis Technologies, get direct access to the Perplexity AI team, as well as input into the product roadmap and insights.

Especially if key metrics keep moving in the right direction. Marketers are creatures of habit, and their ad dollars follow attention — and Perplexity AI’s unique spin on search is capturing that. As of October, Perplexity AI already recorded 1.1 million U.S. monthly active users (MAUs) and 965.6K U.K. MAUs across iOS and android, according to digital market intelligence company Similarweb. Additionally as of October, Perplexity AI’s website saw a total of 90.8 million visits, a 199.2% increase on the same month in 2023.

“Our approach to advertising is a paradigm shift, and so we operate outside of the typical processes for brand advertising,” Perplexity AI said in its statement. “We believe the right brand partners will see our approach as a powerful demand-generation mechanism that augments other tactics.”