Perplexity AI aims to move search past links to provide answers

➤ Startup Perplexity AI combines large language models with a search engine to help users get information faster.

➤ Perplexity backers include investors such as NVIDIA Corp. and Amazon.com Inc. founder Jeff Bezos.

➤ Perplexity will launch advertising for the free version of its product later this year, allowing brands to sponsor follow-up queries suggested by its search software.

Silicon Valley startup Perplexity AI Inc. aims to establish itself as a viable alternative to Google LLC by changing the way internet search results are delivered. With about 180 million queries a month, Perplexity is still a minnow compared with Alphabet Inc.'s search engine, which processes about 100 billion questions per month. However, the Perplexity platform is attracting avid fans in the tech and investment industries, including billionaire investor Stanley Druckenmiller, who recently said on CNBC that he uses Perplexity for 90% of his search needs.

Perplexity provides users with three tiers of service: free, pro and enterprise. Free users enjoy unlimited queries but may encounter limitations on the depth and complexity of their inquiries. The Pro version grants access to advanced AI models such as OpenAI LLC's GPT4o, Anthropic PBC's Claude 3, and Perplexity's proprietary model built on Meta Platforms Inc.'s Llama, as well as expanded upload capabilities, among other features. The enterprise version is tailored for companies seeking to provide their employees with the Pro version, along with enhanced security and control functionalities.

S&P Global Market Intelligence sat down with Perplexity AI Chief Business Officer Dmitry Shevelenko to discuss the company’s product, competition and advertising strategy. An edited transcript follows.

S&P Global Market Intelligence: Could you explain what Perplexity AI does?

Dmitry Shevelenko: The best way to understand Perplexity is a happy marriage of a search engine and a large language model. Instead of serving people links, we get people answers. We have tuned our systems and models that we've developed on top of open-source to be the world's best summarizer and synthesizer of information. We use our search engine to identify trustworthy information on the open internet. Part of what people love about Perplexity is that we show line by line where the information comes from, saving the user time.

How do your customers use Perplexity AI?

People bring their harder questions to Perplexity. The average length of a question is 10 words. On traditional search like Google, the average query length is something like two words. In search, it's important to differentiate Q&A from navigation. A lot of people who use traditional search already know what they want. Perplexity is used when you don't have an answer and go down the rabbit hole of getting new information.

Any differentiation between Perplexity and Google besides chat?

A lot of differences. Obvious differences in the user interface. Fundamentally, Google's objective is to get you to click on as many links as possible. At Perplexity, we have one audience, which is our users, and it's all about getting a useful, reliable answer and empowering them to ask the next question so they can get deeper. We also have different objectives. Google has been cloning some Perplexity features, but the challenge for them is that their users have not been trained to get answers; they have been trained to get links.

All right, so what part of the search market you want to capture? Are you going after the entire search market, or just interested in the "hard questions" market?

We are an ambitious company. We don't think there is a cap on the types of questions we want to answer. As we think about our product road map, it's going to be the same three things: speed, accuracy and readability.

At this point, we are not going after those navigational queries.

You have a free version, pro and enterprise.

The free version is by far the most popular, and we think that will always be the biggest part of the Perplexity user base. People love our free product, and they also find value in the Pro version. We rolled out the ability for companies to buy their pro version for their employees with added security and control features.

For free users, we are going to monetize them through ads as well. We are committed to having a large free user base, and we think serving the needs of those users is just as important as any other audience.

What will the ads look like?

What we are able to do with a fresh business model is not have to anchor user value around clicks and links. That is where we have a big advantage. Ads will be different: you got your question answered, and you're ready to ask your next question on the topic. That is a pretty rich surface area for a brand, which could present a sponsored question.

So, you're going to have the ads in the next question that people try to ask?

One popular feature at Perplexity is that we show you related questions. Forty percent of questions have a follow-up question. We could have a brand suggest a question. For example, you are researching handbags, and one of the related questions is why does Chanel have such an enduring appeal. The answer to that question would have been the same as if you had asked that organically, but you are basically able to suggest the question as a brand. Ever since we started talking about this a month ago, we've had a lot of different brands reach out, and we are excited to start rolling this out over the next two quarters.

Why is now the right time for ads?

It takes time to build a very large and successful ad business. We are trying to do it in a way where users would prefer the version with ads than without it, which is a very high bar. We know it's going to take some iterations and some testing. But we think it's important to have an amazing version of Perplexity available to all users.

Importantly, we will never change the question based on who the advertiser is.

What about the partnerships with telecoms?

We've announced three partnerships: SK Telecom Co. Ltd. for South Korea, SoftBank Corp. for Japan, and Deutsche Telekom AG for Germany and Europe. They realized that Perplexity is an incredible tool, and it would make their subscriptions more valuable. That is the construction of these partnerships. We're working exclusively with a given carrier in the market, and their customers will get a subscription to Pro for free, which otherwise is $20 a month. More exciting announcements are coming in other regions.

Are you borrowing from the playbook of streaming companies with this model?

You are exactly right. We are a streaming company; we're streaming knowledge. There is this old line: there are two ways to make money, either bundling or unbundling. We bundle together information so you get an answer. We also see value in bundling on the distribution side.

What about competition outside Google? What about rumors that OpenAI is working on a search product?

Our advantage is that we have a team that loves to ship products and move faster on those fronts. Speed is definitely an operating advantage. We also have a multi-model infrastructure. It is not the user's problem what model they are using; it is our problem. We need to give the user the best answer, and having more flexibility in how you do that is a huge advantage.