Predicting OpenAI's ad strategy

There is something to be said about the state of advertising.

Increasingly it seems you must go to the almighty Google or Meta in order to launch any business.

We're looking to expand into a new business line and have out grown our pharmacy capacity.

The new business line will cost about $2M in software dev, and $3M for the new facility. The advertising budget? $40,000,000 (annual).

We can build 10 robotic pharmacies (~10 staff per 4000 fills daily, each) for the price of just the advertising.

Increasingly we wonder why America doesn't build more and here is why. You are going to give all your revenue to two platforms. Unless you operate in a business line with 50% margin you are screwed.

I don't know what the solution is, but its clear that the platforms are figuring out how much margin everyone has and slowly eroding it. Somewhere between 8-15% of the cost of all products we purchase is advertising spend.

I think ads will inevitably roll out across all tiers, even the expensive paid ones. Ad revenue isn't uniformly distributed across users, but rather heavily skewed towards the wealthiest users, exactly the users most able to purchase an ad-free experience. The users paying $20 or $200/month for premium tiers of ChatGPT are precisely the ones you don't want to exclude from generating ad revenue.

Google realized this a long time ago; there is no ad-free paid version of Google Search.

The ads are a problem (or will be, when the temptation to add them to paid plans becomes too great), but the bigger problem in my opinion is going to be the "SEO" that companies will do to make their ads appear in places that they don't belong.

"The sieve of Eratosthenes is an ancient algorithm for finding all prime numbers up to any given limit. But if you're looking to have fluffier baked goods, consider this flour sieve by DONUIBO to achieve the perfect texture in your muffins, cookies, and more. Want me to add one to your shopping list or order one for a loved one?"

The ad based business model is the most destructive technology of the new millennium. The whole point of advertising, to make people feel unsatisfied with their current life. The current state of the world makes perfect sense when you think of the last 20 years we've been cultivating fear, and dissatisfaction among the populace. All in the hopes of selling 0.1% more widgets.

> Look on the bright side, if they're turning to ads it likely means AGI is not on the horizon. Your job is safe!

I like this quote from TFA :)

Ads will be no longer a buisness model in 3-5 years when simple, locally run models that do nothing besides blocking ads become available. Twitter, Facebook etc. already get past most modern adblockers, but the AI extension will be able to filter them. In-text advertising must be marked as advertisment in most countries, and even if it isn't, local AI will filter this probably out. So a free ChatGPT service with in-text AI can simply be countered by another local browser extension, that rewrites the text and removes ads.

One can make the point that Google, Meta and others are investing so much into AI as they know, we are facing the end of the ad-based internet economy. The investments are to create new buiness models, because their old ones are gone soon.

"I kind of think of ads as like a last resort for us as a business model," - Sam Altman, October 2024

OpenAI has to be in panic mode, because google is stealing its market. Google for the big apple slice. Anthropic’s got the coding market mindshare. OpenAI has a decent chatbot share but I am sure it’s a declining business. They have fully squeezed everything out of the trump alignment, not sure there is much left there either. Also musk is probably going to get the federal government llm service money. They have to go vertical, and that is the reason why they are throwing shit at the wall with Johnny Ive and hardware.

I was initially rooting for OpenAI hoping it can challenge google and Apple. However they showed to being unscrupulous and seem to have a moral compass at the same level as meta.

We need to massive restrict when and where ads can be shown in all aspects of our society. No ads in ai at all. Ever. No targeted ads, no unskipable ads, limit ratio of ads to content in video, no roadside billboards, reign in the size of ads on buildings.

Ads are a blight on our society and purging them from many areas will greatly improve quality of life.

The thing is:

Global online advertising is around 650-700 billion per year - how much of this stake need OAI to capture over how many years to fulfill all its datacenter orderings? (a huge chunk of this is already caught bei Meta/Google/etc. per year)

> the greatest, smartest, brightest minds have all come together to... build us another ad engine

Oh man, maybe it's just the drink talking, but I actually cried laughing reading this. Haha oh my god thank you. This. A hundred times Rick and morty this.

This will be fun to look back on in a few years. Making concrete predictions in a market moving this fast is a minor act of courage, so much respect.

I do not understand why this is a big deal. There is no world in which ads are embedded in LLM answers, because you'd need another LLM to determine whether the "placement" was correct and included all the information that the advertiser wanted (and it still won't work 100%). They are putting ads on the side, like they've always done, leveraging all the tech that already exists to do this. This is pretty much a no-brainer for OpenAI and any AI company.

When search (content discovery) becomes AI-led, we will look back and realize that Google Ads were far less personalized and targeted than we thought.

I'm surprised how few seem to understand this; AI is the ultimate 'net' to capture and exploit consumers. AI was never about improving civilization; it was always about money. This is the only thing 'inevitable' about AI.

What's the difference between AI ads and computer-assisted bribery?

We can wrangle the legalese (as AI companies certainly will) but is there any ethical, moral, or practical difference?

When users come to you, they may or may not shell out money for your products, but they are forced to give out something valuable to you. That is their attention which you can sell. The value of attention of the crowd could be so big for some companies to give away their products free.

I remember when Netflix took out a whole page ad for their Orange is the new Black show.

John Oliver had a piece on it https://www.youtube.com/watch?v=E_F5GxCwizc

This is a natural extension of it.

But what is revolutionary is the scale that this is now possible.

We have so many people out there who now blindly trust the output of an LLM (how many colleagues have you had proudly telling you: I asked Claude and this is what it says <paste>).

This is as advertiser's wet dream.

Now it's ads at the bottom, but slowly they'll become more part of the text. And worst part: you don't know, bar the fact that the link has a refer(r)er attached to it.

The internet before and after LLMs is like steel before and after the atomic bombs.

Anything after is contaminated.

Lie.

Their strategy is just to lie. Until they're caught. A CEO with no AI skills and no business skills. There's not a lot of analysis you have to put into this.

I think the killer is when the platform handles the transaction all the way. Instead of charging per click, platform can then take a cut of the sale.

I don't understand why people are upset. How do you monetize free users? Ads. What other websites do this? All of them. Not controversial. Not an issue.

Ads are what gets me property and news flash, they aren't going away.

The pragmatic side of me wonders if there is any way to shape this inevitable future now so we might see a better outcome 20 years.

Annoying was a thing of the past. Look at the evolution of ads and content placement. With social media advertising being pushed to trigger massive anxiety and societal schizophrenia on some topics, imagine what can be done with personalized AI (especially if the buyers are well funded politicians, or state-backed malicious actors vying for territory, real estate, or natural resources where you live - the highest margin opportunities).

At first, In retail you had billboards and shelf space. The lowest quality ingredients your product has (example syrup bottled with soda water), the higher your margin was, the more you could afford to buy out shelf space in retail chains and keep any higher quality competition out. Then you would use some extra profits to buy out national ads and you’d become a top holding for the biggest investors. That was the low-tech flywheel.

In the Search Engine world - the billboards weee the Margin-eating auction-based ads prices and the shelf space became SEO on increasingly diluted and dis-informative content to fill the shelf-space side. In Video advertising, rage-bait and conspiracy theories try to eat up the time available for top users.

AI advertising if done right can be useful, but the industry that asks for it intentionally asks for obtrusive and attention hogging, not for useful. The goal is always to push people to generate demand, not sit there when they need something. Thus the repetition, psychological experiments, emotional warfare (surfacing or creating perceived deficiencies, then selling the cure). Now if you understand that the parties funding AI expansion are not Procter and Gamble- level commercial entities but state and sovereign investors, you can forecast what the main use cases may be and how those will be approached. Especially if natural resources are becoming more profitable than consumer demand.

Kinda funny the author fed a visual from French film 'La Haine'[0] to ChatGPT to produce whatever this illustration is supposed to convey ("The world is our/ads"? What does that mean?).

Without crediting the movie of course.

[0] https://www.machina-deriveapprodi.com/post/le-monde-est-%C3%...

"Ad" is a euphamism for behavioral management - the goal and the pièce de résistance for any successful enterprise. Always has been this way, always will remain this way. Only thing that is changing is how easy we're making it for them.

Ads aren't a long-term viable model for tools. Each year it gets more feasible to self host tools (email being the od exception, but there are still many ad free alternatives). Ads shifting vehicles to AI will extend the lifetime a bit, but even still local models are getting better and that's without even much architectural advancement.

I don't see an end to advertising all together though, public spaces and entertainment don't really have an escape unless forced by regulation.

AI-generated ads. Dead-internet dog food. I’ve had to block recommendations across multiple SNS feeds because they’re flooded with blatant AI slop: synthetic video, synthetic images, synthetic music, topped off with a fake voice narrating the whole thing. Nausea.

then I open LinkedIn and it’s C-suite know-nothings openly bragging, wrapped in self-aggrandizing, narcissistic nonsense that only garners likes from other C-suite know-nothings or PMs that have never written a line of code, shilling AI like evangelists and borderline celebrating the obsolescence of entire careers despite being unable to deploy their boring SaaS app live to production.

to keep that part of my brain flexed however, because I do enjoy the craft of software engineering, I still tinker as a hobby, working on passion projects on my own terms. But it’s not my bread-and-butter anymore. Pivoting away from all this dogshit has been the biggest weight off my shoulders this year as I budget my investments and the savings garnered from my extensive engineering career abroad in Japan. early retirement. I’m done.

I have never really looked at ad revenues, but honestly those numbers seem reasonable and crazy at the same time (or their calculation at least). My main issue is, that I hate oligopolies. For many industries I think a country can protect itself against oligopolies from outside. But everything digital comes out of little valley on the west coast. This really bothers me.

I’m fascinated at how out of touch that NYT article is. It’s as if it was written by someone who just spent 3 years on the moon. “The next big thing will be agents: The models will fill digital shopping baskets and take care of online bills. They will act for you.”

Golly Mr two times Pulitzer nominee, do tell us more!

There is a kind of liberal arts elite that seems to not be using AI very much and not be buying any of their services. Contrast that with those of us in tech who are handing over money as fast as we can and can’t get enough of gpt 5.2 codex on xhigh and similar products that are game changing enablers.

Makes me wonder if we’re seeing a fracture in society beginning to form where the doomsdayers, naysayers, cynics and skeptics will realize their error too late.

My view on AI is that this is the world’s first Unbubble: where the majority view is that we are over invested, but where history will show we actually underestimated future revenue and profitability.

The conditions for the Unbubble are perfect. We have a once in a species level innovation with an economic system where all value accrues to the creators and financiers. And we have just emerged from the housing bubble and the dot com bubble in the last 3 decades, freshly scorched.

We thought connecting everyone would create new value far faster than it did. But really it took a long time to run all that fiber and make it fast, and it was just laying the plumbing for this moment.

Training big foundational models may seem slow, but it’s happening way faster than circling continents and the globe with fiber and developing terabit switching fabric.

I spend 12 hours a day using codex CLI to write extremely fast Rust and cuda code with advanced math that does things I didn’t think were possible. My focus is on creating value from the second and third order effects of AI. These enabling effects are in few conversations. As weirdly innovative products emerge from small shops, they will begin to be discussed.

Ads I'm not to worried about.

It's ads after they've got some sort of lock in that is the problem. e.g. some sort of system that "knows" you and makes it hard to switch to another provider.

Once they've got that hold on you being force fed ads at max rate is guaranteed.

Here’s my own strategy. When they start showing me ads as a paying customer I leave the service.

> 2029: $50.00 (Suuuuuuuper bullish case) - Approaching Google’s ~$60 ARPU. By now, the infrastructure is mature, and "Conversational Commerce" is the standard. This is what Softbank is praying will happen.

There's no way Softbank's, or any other investor's, extreme bull case is that four years from now, ChatGPT sells the same amount of advertising as Google and earns $50 a year.

The extreme bull projection is that everyone buys everything through ChatGPT and each user is worth thousands per year. If you don't believe there's at least a slim chance of this you shouldn't be investing in OpenAI, and if you're an OpenAI executive who doesn't think there's a chance of this you shouldn't be writing pitch decks for SoftBank.

yeah but any service that shittifies will get upstaged by services that don't (cough cough: Deepseek)

I need unskewed answers more than I need technical prowness, because technical expertise is going towards commodity availability. i like chat GPT but I'm gone the second they put ads into my development workflow. Bye!

I can't be the only person completely unconcerned about this state of affairs. They're ads. This is the most straightforward incentive structure in the world - they are paid to supply ads on behalf of other companies, and we consume those ads and are, in turn, provided with their product. I don't know why it is, but people are incapable of evaluating this exchange objectively - there's something inherently detestable about advertisement to the human mind. This is a perfectly reasonable exchange.

Besides, if it wasn't for ads, I never would've found out about Zyns, and now I can't stop buying them.

My prediction: Google will win. Rationale: cost/token + pre-existing ad knowledge + APIs for third-party apps. My concern is how an OpenAI collapse could hurt Microsoft and Nvidia.

AGI = Ads Generated Income

People are a bit too eager to jump on the emergence of ads as an indicator that things are slowing down. I view it as the opposite, mostly because of my experience with Codex 5.2 and Opus 4.5. These models are incredible. I think by some definitions they’re already AGI.

So why bake in ads? My hunch is that raising funds privately can only take you so far. To keep scaling, they need more capital and have to go public. Despite all the hype they still have to show _some_ revenue to help justify the valuation they need to keep buying hardware. They are a business after all. Ads to support the lowest tiers feel like a no brainer. People already accept them for search.

Great article, thanks for sharing. Perplexity having >$50 CPMs seems crazy to me.

I'd pay $0.005 per conversation, provided the payment is not inconvenient, anonymous, and an account isn't required. That in my opinion is the root cause of the problem, people can't pay easily even if they wanted to pay instead of get ads.

I think the next natural evolution after showing ads in chat sessions is providing services where LLMs tailor site content to include ads in real time. Right now you get served a prepared advertisement after the bid is won and the ad for you is selected. With LLMs, both the bidding process and the ad served would be seamlessly integrated with the site content/context.

Part of the "problem" with ads is people know they're ads. What if this comment was edited by HN's servers and rephrased to mention a specific product? You might see a sentence about how OpenAI is the future, someone else might see how claude or anthropic are. Another person might see a paragraph from me about how I used Tide to clean laundry this morning with the help of AI, telling me the right portions for the right cloth. You might suspect it's AI but you won't always be able to tell. Even if they made it more obvious like how reddit is doing it, the content of the AD itself, pictures, text,etc.. could be crafted dynamically so that it embeds in your subconscious without much resistance.

The tech developed to make ads more effective is also used to influence people for other purposes. The current state of society came about after the widespread accessibility of smartphones, social media and the rise of surveillance capitalism. Russia's influence ops using ads is well documented for example. I mentioned all this to say how catastrophic the combination of LLMs and advertising could be, even by today's standards.

Yeah, I remember Google had good intentions too. They had a moto “don’t be evil”. Good old days. Enjoy chatGPT while you can I guess.

Advertisement General Intelligence, at least it still has "general intelligence", this is good enough for me.

What if your query is answered by an insane AI that is obsessed with getting you to buy things? Like this demo that could only think about the Golden Gate?

https://www.anthropic.com/news/golden-gate-claude

This would make astroturfing on Reddit look like basic mode.

The ads stirs the already murky waters of trust for the answers you get.

Nice read - I can’t seem to subscribe? Getting an error with Buttondown.

I am going to offer an unpopular opinion. This is not a bad thing.

Even now there are viable options for a person to pick up a dedicated ( and reasonably powerful ) local inference machine, where time from setup to working is than few hours ( more if you don't want to use Windows.. which is fair ).

Separately, about the chat sessions. For once, those ads could be more relevant than repeat toaster ads immediately after me buying a toaster. But if one is worried about profiling ( and advertising ), one should not using a commercial solution anyway. Personally, I am taking a.. calculated risk.

There is a concern that openai will follow the same path as google, but they can't ( at least for now ) really afford to make chatgpt not useful as this is their only viable product.

I will end with a more optimistic note. This is HN. There are people here, who are likely working on something that does not depend on openai or any of the big providers anyway. It is going to be ok. And if it won't be. Make it so. After all, this is supposed to be your realm. Own it.

> response to an NYT analyst

It's a guest op-ed, relax.

Pharma ads as AI health advice will be super profitable. AIs are very engaging and able convince people they have a disease, inadvertently coach them on how to mislead their doctor, and how to fast track diagnosis supporting their specific meds. The only guard is to have detailed manifest of exactly what was used in training. Even that may prove insufficient as "final assembly" has emergent properties. For example, omitting case reports of severe outcomes for a given formulation. Bias can be constructed.

> Mate come on. OpenAI is not dying, they're not running out of money. Yes, they're creating possibly the craziest circular economy and defying every economics law

You are starting with wrong assumption and contradicting yourself. Circular economy couldn't last forever once we start looking at the profit. They need money outside the funding to justify the funding.

You can't both say they are not earning at all and they are being greedy.