Core Viewpoint - Perplexity, an AI search startup, faces significant challenges despite its high valuation of $18 billion, including struggles in monetizing its advertising business and legal issues with content copyright [2][4][12]. Group 1: Company Overview - Perplexity was founded three years ago and has rapidly increased its valuation to $18 billion while expanding into advertising and shopping [2]. - The company recently made headlines with a proposal to acquire Google Chrome for $34.5 billion, aiming to gain a substantial user base [32][33]. - Perplexity's advertising revenue for Q4 of the previous year was only $20,000, highlighting the difficulties in generating income from this segment [3][10]. Group 2: Advertising Challenges - The departure of Taz Patel, the head of advertising, after just nine months, raises concerns about the company's ability to effectively develop its advertising strategy [7][11]. - Perplexity's advertising efforts are still in the experimental phase, with no clear successor to lead the advertising business following Patel's exit [11]. - The company has incurred millions in legal expenses due to copyright lawsuits from major publishers, further complicating its financial situation [12][14]. Group 3: Industry Context - Perplexity is not alone in facing challenges in the advertising space; major players like Microsoft and Google are also exploring AI-driven advertising but have encountered their own difficulties [15][18]. - Microsoft has integrated OpenAI's technology into Bing and is attempting to embed ads within conversational responses, but its daily active users still lag behind Google [16][17]. - Google is also experimenting with AI search ads but has faced issues with the quality of its AI-generated responses, which could deter advertisers [19][29]. Group 4: Future Prospects - The AI search advertising market is still in its infancy, with projected spending of only $1 billion in 2024, indicating that companies like Perplexity may struggle to recover costs through advertising alone [38]. - Despite the challenges, there is potential for higher conversion rates in AI-driven advertising compared to traditional search, as evidenced by Microsoft's data showing increased user interaction and conversion rates [40]. - The future of AI search may shift from traditional advertising models to a focus on delivering results, raising questions about the reliability of AI recommendations and the evolving nature of advertising in this space [44].