Perplexity's shift to ads: Can it compete with Google’s dominance?

Perplexity, an AI-powered search engine touted as a threat to Google's search engine business, is looking to start offering ads on its platform to generate revenue.

While this development is positive for the company, it raises some important questions regarding its position in the search engine market.

This shift in strategy may boost the company in the short term. However, it is the same strategy that Google has perfected over the past two decades.

So, will Perplexity be able to defeat the search giant by simply copying its business model?

Copying Google, but with a less profitable approach

Perplexity's decision to offer ads on its platforms mirrors the same business model that Google uses.

Perplexity had initially portrayed itself as an ad-free alternative, generating revenue through subscriptions.

However, as the number of monthly queries on the platforms keeps rising, the company is realizing ads are the way to go.

At least that's what the company's latest pitch deck portrays.

There is no inherent problem with this approach. However, doing the same thing that Google does, but less profitably, does not make it Google's competitor.

Yes, the quality of results is better in some cases. But there is no guarantee that Google won't catch up soon.

As per some undisclosed sources within the company, Perplexity is looking at CPM prices of over $50.

This is way more than the industry average of $2.5.

The reason Perplexity can charge such a premium is because its users belong to certain niche categories, and are generally more educated and inclined towards academics.

Even though this helps the company to improve profitability, there will be question marks over its ability to scale these numbers.

Content creation dynamics favor Google

Perplexity will allow advertisers to place ads in the related queries section. Advertisers will also be able to sponsor some related questions below the AI-generated answers.

In the long run, this would mean that content creators will start creating content to make it to the related questions section.

This would mean generating content for the sole purpose of ranking well in Perplexity search queries.

Sounds familiar? Yes, that is exactly how Google ruled the internet world and became a monopoly.

The question then for Perplexity is why it thinks it can force people to make content suited to its requirements when Google can offer people the same approach, with massive infrastructure already in place.

There is no way Perplexity can beat Google at its own game. It boils down to the same point: You can't beat your competition by copying their business model.

Google's direct answers and user intent

Google currently gives users direct answers to their questions by predicting their search intent.

It also uses AI to generate answers, though they aren't as high quality as Perplexity.

One could argue that this lack of quality is intentional, as Google does not want to kill its own search ads business.

However, if Perplexity becomes a threat, Google will eventually be forced to offer high-quality AI-generated responses.

Nobody can question Google's ability to do so.

This takes us back to the original issue. If Google can do the same that Perplexity does, why would Perplexity ever go mainstream?

Google still controls over 90% of the search market. That dominance isn't ending anytime soon.

To conclude, Perplexity's move to incorporate ads into its platform is playing right into the hands of Google. Perplexity will now be forced to follow the same path that Google followed two decades ago. It may never be able to catch up to Google now, as its unique selling point isn't there anymore.