Perplexity AI Grows Rapidly Amid Controversy Over Data-Gathering Methods

Key Insights:

• Perplexity AI’s revenue jumps seven-fold in 2024, fueled by a $250M funding round and a pivot to ad-based revenue.
• Perplexity AI shifts from subscriptions to ads, signing major publishers for revenue-sharing as it competes with Google and OpenAI.
• Amidst rapid growth, Perplexity faces scrutiny over data practices, while developing its own search index to stay competitive in the AI market.

Perplexity AI, a San Francisco-based AI search start-up, has experienced significant growth in both revenue and user engagement throughout 2024. Since the beginning of the year, the company’s monthly revenues have surged from an annualized $5 million to over $35 million, representing a seven-fold increase. This growth has been supported by a $250 million funding round, which tripled the company’s valuation from $1 billion in April to $3 billion.

The platform answered around 250 million user queries in the past month alone, contrasting with a total of 500 million queries throughout the entirety of 2023. According to Dmitry Shevelenko, Perplexity’s chief business officer, the start-up’s focused approach on answering user questions with high-quality sources has been a key driver behind its rapid adoption, despite growing competition from established technology companies like Google and OpenAI.

Shift from Subscriptions to Advertising

In a move that signals a shift in its business strategy, Perplexity AI is transitioning from a subscription-based model to one centered around advertising. The company plans to introduce ads on its platform by the end of next month, positioning itself to compete more directly with Google, which dominates the $300 billion search advertising industry. Perplexity’s decision to focus on advertising is a departure from its earlier reliance on consumer and enterprise subscriptions.

Shevelenko noted that unlike other AI companies, Perplexity has always anticipated advertising as its main revenue source. To align with this new model, Perplexity will share a “double-digit” percentage of revenue generated from sponsored articles with the news publishers cited in those articles. The start-up has already signed agreements with major publications such as Time, Der Spiegel, and Fortune. 

Despite this new direction, there are concerns that the introduction of ads could affect user trust, especially in light of the skepticism some users have expressed regarding the reliability of results on platforms like Google.

Controversies and Publisher Relations

Perplexity AI has faced controversy regarding its data-gathering techniques, particularly in how it reproduces content from various publications. In June, Forbes and Wired accused the start-up of plagiarism, criticizing it for republishing stories without proper attribution and for scraping content from websites that had blocked its web crawlers. 

Shevelenko acknowledged these criticisms and stated that the company has made changes to its interface to ensure proper citation of sources and has implemented measures to prevent the summarization of entire websites.

In response to these allegations, Perplexity introduced a revenue-sharing program for publishers. Since its launch, 50 publishers have reportedly expressed interest in joining the program, with Perplexity aiming to include as broad a range of websites as possible. 

Shevelenko emphasized the importance of building sustainable business models for journalism, suggesting that long-term revenue-sharing agreements are more beneficial than one-time payments, which have been favored by other AI companies.

Competition and Future Prospects

As Perplexity AI continues to grow, it faces increasing competition from both established tech giants and other AI start-ups. Google, which has long dominated the search industry, has begun integrating AI features into its core search product in response to the rise of AI-powered search tools. Meanwhile, OpenAI recently launched a prototype AI search tool, SearchGPT, which is currently being tested by a limited group of users.

Despite these challenges, Shevelenko remains confident in Perplexity’s ability to compete. He argues that Perplexity’s singular focus on providing high-quality answers to user queries gives it an edge over competitors with broader ambitions. “OpenAI is involved in many different projects, which might dilute their focus on delivering high-quality search results,” Shevelenko said.

Unlike Google and OpenAI, Perplexity does not develop its own AI models, instead licensing technology from other providers, including OpenAI. The company’s search engine initially relied on Microsoft’s Bing index, but it has since developed its own proprietary search index and ranking system, supported by a dedicated web crawler.

Editorial credit: rafapress / Shutterstock.com

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