Perplexity, the AI search engine startup, just closed a $73.6 million Series B fundraising round at a $520 million valuation.
In just one year after its launch, the company’s conversational answer engine ‘Perplexity AI’ amassed 10 million monthly active users and has processed over half a billion queries. This rapid growth proves a broader trend we are seeing in the artificial intelligence industry–most consumers are using AI chatbots as search engines. Perplexity understood the friction within traditional search engines and created a solution that gives users direct answers to their queries, bypassing the conventional list of website links returned in traditional search engines.
The company’s product, which it refers to as an “answer engine,” gives users instant, direct responses to questions with complete sources and citations; A model that is much different from traditional search methods that are often full of SEO spam and sponsored links.
$100M Investment from Tech Titans
Perplexity has raised $100 million and has several notable investors, including Jeff Bezos (through Bezos Expeditions Fund) and Nvidia (NASDAQ: NVDA).
“While there has been a lot of excitement around business-to-business and developer-related AI capabilities, AI will also transform how we access information. Perplexity is at the forefront of this shift as one of the few consumer AI products to reach this major milestone of 10 million MAUs. They will become the go-to place for trusted information, which is why I am so excited that Perplexity is NVIDIA’s first consumer investment from our corporate arm.” said Jonathan Cohen, VP of Applied Research at Nvidia.
Perplexity says it plans to use its newly raised funds to execute its consumer adoption and expansion plans.
Is it too late to start the AI Race?
Although I am undoubtedly an advocate for emerging technologies with a particular focus on artificial intelligence, I do like to scrutinize the companies operating in the industry and try to poke holes in their business to understand if their business model is sustainable and if the company will be around in the future or if it is more likely to fizzle out (assuming they don’t pivot or add new features).
When it comes to Perplexity AI, I wonder if an “answer engine” is more of a feature than a standalone business. Perplexity generates annual revenue between $5 million and $10 million through subscriptions and B2B software sales, but the company is not profitable yet. The company charges its subscribers $20 a month. It gives them access to a more advanced version of its answer engine that leverages GPT-4, but this begs the question: why not use OpenAI’s GPT-4 directly—which is also a $20 per month subscription—as many already do for search purposes?
Perplexity AI has identified a real pain point that its target customer segment experiences, and there is enough friction in the “traditional” search engine workflow for a meaningful solution to be brought to market, like Perplexity’s answer engine, but it still feels like the Perplexity answer engine is more of a feature that should live within a suite of tools more than it is a standalone business. If Perplexity went to market with this solution 2-3 years ago, it would be coming from a position of strength with its answer engine, but at this point in the AI race, Perplexity is no longer competing with traditional search engines. It’s competing with the dominant AI models in the market—the same one(s) it uses to provide its subscribers with a premium service.
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