Chatbot Ads Are Here: What's Working and What Isn't

Anthropic is sticking to its Super Bowl promise to keep Claude ad-free. Its recent IPO filing didn't mention ad sales as a revenue option, and with roughly $112 billion in investor cash, the company can afford to hold that line.

Much of the chatbot industry may not have that luxury, given the high cost of generating AI responses. OpenAI has more than 100,000 customers advertising in ChatGPT since ads launched there in February. Last week, Google expanded ads in its AI Mode search chatbot to 10 more countries beyond the US, saying users "find them highly relevant." Advertisers aren't satisfied yet, but they expect improvement.

Ads may prove especially important for smaller chatbot platforms that lack big venture funding or tech-giant revenues. Koah Labs, a San Francisco ad tech startup, places ads in over 200 apps, including DeepAI and Liner, working with brands like Hims and UrbanStems. It has a tenth of OpenAI's advertisers, but CEO Nic Baird says he's learning what works.

Ads partly composed by AI rather than entirely by humans generate double the clicks, Baird says-possibly because AI-written copy feels natural beside AI output. Because Koah's ads are grounded in advertiser-supplied product details, users don't seem to encounter hallucinated information. But some advertisers, such as drugmakers facing government rules on ad claims, keep more human control and see weaker results.

Koah can tailor ads using not just the prompt but the AI platform's response and the conversation's context, and chatbot prompts tend to run at least twice as long as Google queries. Baird says users click about 3 percent of ads, roughly on par with Google's system.

Koah generally receives a user's entire conversation up to the point an ad is shown. Baird says queries are anonymized and stored de-identified but declined to elaborate. By his estimate, one in four chatbot queries about a retailer or brand concerns a return, exchange, or support issue-a chance for advertisers to reach unhappy customers.

No app Koah serves offers shopping agents yet, though Meta's Muse and others are emerging. Baird expects agents could be swayed by ads, provided sponsored content is made "abundantly clear." Not everyone is convinced: DeepAI CEO Kevin Baragona says ad revenue has been meaningful but he isn't committed to it. "I don't think the ads are working terribly well for anyone," he says.