You Think AI is Going To Kill Ads on the Internet? It’s not…
People don’t talk about adtech at cocktail parties. You don’t know the names of the fund returning adtech outcomes that have occurred over the last decade…who wants to talk about enabling the hated but necessary business model that’s sustained the internet for the past two or three decades? Well…I’ve always found adtech interesting. If you like thinking in systems and infrastructure, it’s actually a pretty expressive place.
We’re in an interesting moment today, where for the first time in a VERY long time, the most closely held assumptions around how the internet is monetized are being challenged. Like it or not, AI is abstracting away the content and information from the web from the publisher or website that has historically hosted it. That’s a profound change for anyone whose business model relied on eyeballs on their webpages. Interestingly, it’s not just the underlying, ad supported web property that’s under fire, it’s also the distribution channels that have built large businesses driving traffic to those pages. Look at what Arc Search and Perplexity are doing to Google’s stranglehold. A machine’s ability to synthesize and understand what previously required a human brain to understand is upending the paradigm of how we consume the internet, and in turn, how we incentivize movement around it.
With any emerging technology or market, the initial opportunity tends to be downstack and infrastructural. As a market matures action moves up toward the application layer, and along the way value is captured at a number of different layers in the stack. Adtech is this weird middle layer that has an infrastructural shape (which nicely indexes an ecosystem as a whole), but it’s super close to the application layer (and of course to the money). In AI, if chips and then foundation models are the lowest levels of infrastructure, an emergent adtech layer is ascending up the progression toward applications capturing value. You have early AI apps, like Arc and Perplexity, that are well positioned for the future, but we’re early at the pure application layer.
I’ve read contentions that advertising as a business model is going to die in this new age, perhaps replaced by data monetization alla Reddit’s $100M Google deal to train AI on Reddit data. I don’t believe that for a number of reasons.
Which begs the question…what does advertising look like in an AI world? Will brands and advertisers figure out how to bid against influencing inference? Will there be an ad-supported inference API that’s free to build on, but explicitly allows 3rd parties to have a say on the tokens it delivers? Will people figure out how to target ads against a point in space as opposed to keywords as data captured by applications is immediately passed through embedding models and stored as vectors? And will the context of a conversation or information being consumed influence the creative and format of an ad in a performant and maybe even pleasant way?
Those are all interesting questions to chase down as an early stage founder. And there are a bunch of others as well. Whether you need $1M or $20M to build out an adtech ecosystem that’s native to AI, I’m ready to lead your financing and go on the journey with you. jordan@pacecapital.com
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