OpenAI has set its initial advertising pricing comparable to premium video content like NFL games, significantly exceeding the ad rates of competing social media apps such as Meta.
However, unlike Meta and Alphabet, OpenAI will not initially provide advertisers with detailed query response data linked to their ads, nor will it disclose whether the advertisements lead ChatGPT users to make purchases or visit websites. The company may gradually introduce such data in the future, contingent on building more advanced advertising tools, a process that will take time. This highlights the considerable work ahead for OpenAI if it aims to develop an advertising business capable of competing with leading ad platforms.
A media buyer working with several of the first advertisers revealed that OpenAI has informed its early partners that it will provide data on ad impressions (the number of times an ad is viewed) and total click-through rates. A company spokesperson confirmed that advertisers will receive core data insights, such as total ad views, a model similar to the data services offered by television networks.
One of the core reasons Alphabet and Meta have surpassed the television industry over the past two decades to become the world's largest advertising platforms is their ability to provide advertisers with granular data, helping marketers calculate the actual return on their advertising investment.
Industry observers expect that as the advertising business progresses, advertisers will demand that OpenAI adopt more advanced ad technology, enabling not only precise targeting of the ChatGPT user profiles seeing the ads but also tracking whether the ads directly lead to sales conversions.
Olivia Cory, Chief Strategy Officer at marketing analytics firm Haus and a former executive at Netflix and Quibi, stated, "When an advertising product is in its early stages and demand is high, companies don't necessarily need to rush to perfect these data services. But as the product evolves, advertiser demands for this will intensify."
Earlier this month, OpenAI announced that it would launch ads in the free and basic paid tiers of ChatGPT in the coming weeks. This foray into advertising coincides with the company's plans to raise tens of billions of dollars in funding. Selling ads to users of the free version of ChatGPT is a core part of its revenue strategy, aiming to achieve $11 billion in annual revenue from the non-paying user segment by the end of next year.
The media buyer mentioned that to secure its initial advertising partnerships, OpenAI's business partnerships team bypassed advertising agencies and directly approached multiple potential advertisers. These included both existing commercial clients of the company and well-known large enterprises across various sectors. In contrast, the core customer base for the advertising businesses of Meta and Alphabet consists primarily of small and medium-sized enterprises.
The source also revealed that the initial ads will appear below ChatGPT's response content, with OpenAI setting a cost per mille (CPM) of approximately $60. Analysts note this price is on par with premium TV advertising inventory like streaming targeted ads and NFL live broadcasts, whereas Meta's CPM is typically under $20.
Analysts and marketing executives believe that, leveraging ChatGPT's vast user base and the fact that its conversational content can accurately reflect users' genuine interests, many advertisers are willing to pay this premium price for the initial ad slots. User searches on ChatGPT are often open-ended, such as "recommendations for travel-friendly suitcases," indicating users have not yet formed strong brand preferences, making them highly attractive to advertisers.
Nevertheless, most advertisers are likely to adopt a wait-and-see approach, hesitant to allocate significant marketing budgets to ChatGPT ads until they see concrete evidence of sales conversions. Previous reports indicated that these initial ads are merely a test for OpenAI, and the company may adjust its advertising strategy based on the test results.
Brian Stempel, founder of AI marketing startup Evertune AI and a former employee of ad tech firm The Trade Desk, said, "ChatGPT's most critical task next year is to build the link between advertising and sales conversions, creating a closed loop from traffic to transaction."
The model of a company launching an advertising business first and then gradually building out the technical infrastructure to enhance marketing services is not unprecedented. About a decade ago, Facebook initially sold ads primarily based on reach and impressions, only later rolling out tools to track metrics like clicks, app installs, and purchases.
Andrew Lipsman, an advertising and e-commerce industry analyst, noted, "This was precisely Facebook's trajectory in its early years. For the first several years, the core selling point of its ad business was reach and impressions. It wasn't until around 2015, when it fully pivoted to performance advertising, that its ad business experienced explosive growth."
An OpenAI spokesperson stated that the company has formed a dedicated ad sales team to advance the business. The initial advertiser outreach for this launch is being handled by the business partnerships team, and the first pilot ad partnerships are not exclusive to existing commercial clients.
Another advertising industry insider revealed that OpenAI is currently collaborating with major advertising agencies, which often devise long-term media strategies for large brands, with the goal of attracting more new advertisers. The media buyer also pointed out that the company has not yet partnered with ad tech firms for ad serving and management services.
Stempel added, "Getting test budgets from advertisers isn't the hard part. But if you want to scale ad revenue to $10 or $15 billion, you must develop deep joint business plans with top-tier agencies like Omnicom and brands like Coca-Cola."