🤖 Ads enter the chat 📲

OpenAI has begun showing ads in ChatGPT and is in talks with The Trade Desk to expand the effort. Google already runs ads across its AI search products, and Adweek recently reported that Google plans to bring them to Gemini this year. (Google has since pushed back on the idea, but it’s extremely hard to imagine Google, which makes the vast majority of its money from ads, abstaining forever.) 

Most recently, The Information reported that Amazon, which is experimenting with ads inside its AI shopping assistant, Rufus, is also exploring licensing that technology to others.

A bold, new era of “a word from our sponsors” has begun.

• AI ad marketplace Koah, which recently raised $20 million, is placing ads inside everything from coding copilots to AI pediatricians to meal-planning chatbots.

• Why? AI chatbots are the innovation du jour, popping up inside companies and apps of all stripes — and launching as businesses in their own right. 

• They’ve also been around long enough that the bills are coming due. Running large language models is expensive. As chatbots proliferate across the web, their creators are looking for ways to offset those costs — and, in some cases, build entire business models.

• The potential market is enormous, and some analysts think it could rival search engines. Roger Beharry Lall, research director at IDC, estimates that over time, the roughly $300 billion to $400 billion spent annually on search ads could shift toward AI, with one market cannibalizing the other.

While many including ChatGPT are trying subscription models, there’s a ceiling to how many people will opt to pay for those and how much. Advertising, on the other hand, can grow alongside chatbots’ rapidly expanding adoption. It’s the obvious solution.

The Takeaway

Both Koah and OpenAI say ads won’t influence the information provided in responses — a separation they argue is essential to maintaining trust. If you ask about running techniques, you might see an ad for sneakers, but the ad won’t cause the chatbot to steer its answer toward that particular brand.

OpenAI executives have previously expressed skepticism about ads in AI assistants, warning that monetization could distort incentives. But the economics appear to be winning, as evidenced by ChatGPT’s entry into the space. Anthropic, for its part, has so far resisted advertising altogether, positioning itself as more cautious about commercial influence — even as it advertised on the very big ad platform of the Super Bowl.

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• Rising oil prices are an existential threat to airlines: As oil prices surge amid the war in Iran, airlines are facing a jet fuel margin squeeze not seen since the aftermath of hurricanes Katrina and Rita in 2005, when devastating storms caused extensive damage to several refineries. According to Deutsche Bank analyst Michael Linenberg, airlines worldwide could be forced to ground thousands of aircraft, while the more financially vulnerable carriers could even be forced to suspend operations.

• Apple is heading down-market: Last week, Apple unveiled a lower-end MacBook and iPhones, each starting at $599. As the company has “lost basically a generation of customers” to Google’s Chromebook, the Neo, Apple’s cheapest MacBook yet, could provide opportunities to grow beyond developed markets and into the hands of budget-conscious buyers more broadly. As for the iPhone, Apple accounts for more than half of global used and refurbished smartphone sales. In other words, many consumers want iPhones; they just don’t want — or can’t afford — to buy them new.

GoPro’s share price has somersaulted to a near 99% decline from its 2014 peak. But as video is emerging as one of the most sought-after formats for data-hungry AI hyperscalers, GoPro sees an opportunity to feed users’ personal videos to AI training programs. During its earnings call on Thursday, the CEO shared that GoPro would begin to recognize revenue — which will be split 50-50 with contributing users — in Q1 of this year.

See the journey of GoPro’s skydiving revenue.

• 📉 Jobs: Event contracts* showed the odds of a Fed rate cut in June jumping to around 50% in the minutes following the release of jobs data (nonfarm payrolls growth was -92,000 on an estimate of +55,000) on Friday, from about 30% beforehand.

• 🏛️ Shutdown: As the shutdown of the Department of Homeland Security enters its third week, the standoff over funding is seen as having little chance of resolving any time soon. Markets are currently pricing in a 52% chance that the shutdown continues for at least 50 days, with a 17% chance it goes at least 90 days. 

*Event contracts are offered through Robinhood Derivatives, LLC — probabilities referenced or sourced from KalshiEx LLC or ForecastEx LLC.