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Recently, Open AI announced that it was
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going to test the idea of bringing
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advertisements to Chat GPT. It's a move
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being made in part because of mounting
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costs, and this is seen as a way to
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recoup some of the invested money. The
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ads will look to target adult users of
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the free tier and the $8 per month tier.
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But that brings up many questions of how
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this will actually play out and the
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principles that many companies have to
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follow when you're talking about placing
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ads on TV or on the internet. Pleasure
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to be joined as we are every month to
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speak about AI with Stephano Pantoni,
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professor of marketing here at the
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Wharton School and also co-director of
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the Wharton Human AI research program.
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Stephano, great to catch up again. How
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are you, sir?
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>> I'm great, thanks Dan. Good to be here.
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>> Thank you. All right. So, when you hear
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this announcement, your thoughts are
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what I mean because obviously OpenAI is
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thinking about this from a business
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perspective, but there are obviously I
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think probably some concerns out there
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as well.
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>> Well, it was in a way inevitable. I
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think you have to expect OpenAI to have
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to essentially find ways to monetize a
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free plan which is incredibly popular.
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There are hundreds of millions of people
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using it and right now is making no
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money to the company and that cannot
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last forever. And so there are two ways
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basically to do that. One will be to
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increase the number of people who
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upgrade to the paid plan and they will
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try to do that. for example, by
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introducing a lower tier called uh
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Chachi Go for only eight bucks a month
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and hopefully, you know, increase also
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the number of people who decide to sign
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up to Chach Plus, the more expensive
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plan or even more expensive one than
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that. But, uh, essentially the
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alternative to that is advertising.
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That's the only way we know essentially
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to make money on the internet. And uh
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the share of people who are going to be
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willing to pay is probably going to be
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fairly small. So we should probably
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expect hundreds of millions of people to
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uh um to basically you know be exposed
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to ads in uh in CHP and the moment that
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CHP does it is likely that other other
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platforms will follow. So we'll see a
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bit how that evolves.
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So, I mentioned at the top the reports
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say that uh they're going to try and
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make sure that this focuses on adults,
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but I think anytime we're talking about
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the use of internet and technology, the
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question of could this potentially
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impact kids who obviously are going to
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use chat GPT as well. You know, could
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they potentially be impacted and be
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targeted and have their data picked up
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by companies?
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>> Yeah, that's uh that's one area of
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concern. The um uh the sign up process
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for CHP right now is very basic um very
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little uh validation verification and uh
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that may have to change the probably
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depends a little bit on the regulator.
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What's interesting about uh uh chatbots
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interaction is that uh because of the
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rich conversational nature of the data
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they collecting in these interactions
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with users, they probably can have quite
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a good sense for who is a person even
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when they don't have that much
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information about them in the signup
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process. And so that's one open question
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to see whether there are technology
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tools to basically enable the
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enforcement of that principle. How do
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you think this impacts the world of
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advertising and maybe even more so
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digital advertising as we
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>> Oh, this is a big uh this is a big
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thing. I mean it's uh um chatbots like
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Chpt PT have been become incredibly
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popular uh um among consumers and so in
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terms of the amount spent and the uh um
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the persuasiveness of uh those
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conversations is really quite uh
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incredible especially considering that
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was only launched in November 22. Now if
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you think about the digital advertising
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ecosystem there are different formats
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different ways of doing ads on the web.
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The most famous and prominent are really
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search advertising and social media
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advertising. Basically these are the
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corners of the advertising space have
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been uh basically dominated by uh Google
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and by meta. And the question then would
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be how does uh chatbot advertising or
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conversational AI as you might call it
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relate to those? And I'd say if you
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think about the sales funnel where you
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start with basically consumers who might
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be aware, maybe considering some
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products but not having very uh explicit
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uh intent to buy. Then you go down the
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funnel. People develop that intent.
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Eventually they buy and become loyal
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customers as basically the sales funnel.
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And what a marketing manage is
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essentially striving to do is to guide
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people along that funnel. Well, social
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media advertising is occupying the top
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of the funnel, right? So you have people
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who are you know talking to friends
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browsing any kind of random materials
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cat videos or whatever it may be and
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then they get exposed to ads for this
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and that product obviously based on
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information about the browsing behavior
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personal characteristics and thing like
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[clears throat] that but essentially
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it's not it's more like mass media ads
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in that sense that you are not there for
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buying anything most of the times while
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search ads are very different. Search
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ads are really at the bottom of the
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funnel because you're going on search
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engine and typing in uh keywords that uh
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the companies are bidding on to serve
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you ads because those keywords are
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presumed by the company to be revealing
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of a given intent of this position. And
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so you are clearly signaling that you
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are in the market for whatever it is
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that the company is advertising. And so
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in a way it's interesting that you have
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these massive companies developing in
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the ad space and they've kind of
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positions at opposite end of the sales
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funnel and I suspect that you can see
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chatbot advertising is sitting somewhere
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in the middle between the two in that
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it's kind of like you're there doing a
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lot of different things on chat PT and
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it's conversational and social. So in
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that sense it might remind you a little
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bit of social media advertising. At the
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same time you are prompting the chatbot
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with a query and that query is probably
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directly picked up by advertisers to
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decide whe
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uh expression of intent and a need is
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making it more similar to search
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advertising. And so probably I would
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think of chat bots as a middle of the
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funnel kind of uh uh kind of and if you
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I've seen only one paper that has very
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early data on the referral value of uh
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uh chatbots referrals and uh it seems
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like in terms of revenues per session
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right now PT sits somewhere in between
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social media and search. So in that
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sense seems to confirm this middle of
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the final position. Over time, of
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course, as people spend more and more
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time on chatbots, that position might
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impinge more on both the top and the
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bottom of the funnel.
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>> And so, probably not a big surprise then
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when we hear this announcement made that
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one of the other announcements being
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made recently is the fact that it looks
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like OpenAI is going to go for an IPO,
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an initial public offering and go public
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at some point later this year. And maybe
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it is a case where they will see a
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quarter or two quarters of how this
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advertising platform works and how well
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it is received or not received and then
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make that final decision about going for
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the IPO.
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>> Yeah, absolutely. So, the Wall Street
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Journal broke this story a few days ago
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where they said that uh OpenAI is
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talking to Wall Street bankers about uh
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an IPO in the fourth quarter of this
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year. And I think you should read both
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that process and the announcement of uh
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ads in Chach as part of that same path
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where basically the company needs to
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demonstrate and display the fact that
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they can monetize that massive user base
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before they can expect a successful IPO.
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What then do you want to see or need to
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see from Open AI as they start to
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develop this process so that it ends up
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being obviously they want it to be one
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that's financially successful. They want
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it to be one that works with the
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consumer as well, but that it doesn't it
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doesn't interfere with the daily process
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that a person is going through in terms
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of using it. You want it to be a
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positive experience, not a negative one.
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>> Yeah. So the uh um if you look back at
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the statements by Sam Alman about
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advertising up to relatively recently,
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he was very negative about the idea. He
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was even presenting it as a nightmare
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scenario to have advertisement in ads.
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Apparently, you know, people change
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their mind and uh but there are obvious
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risks because if OpenAI would go the
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same way that Meta and other social
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media companies have gone where
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everything and only thing they care
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about is engagement, then you can see
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potentially the risk for mental health
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and society where an incredibly powerful
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and persuasive chat bots want you to be
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there all the time. Okay. And so there
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is that risk and in that sense I I was
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very happy when I read the news by
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OpenAI. I think the advertising
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principles that they announced they are
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very good and it's hard to imagine them
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being better in fact. Um so for example
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one of the key principles they call it
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long-term value which is they do not
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optimize uh for spine for time spent on
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chach right
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>> that's a big deal. That's a big deal. If
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they can stick to that, I think that's
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going to be a much more likely that
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advertising power business models are
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going to just be very good for
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consumers. Making available for free and
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enormously useful technology supporting
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the the the um AI ecosystems and
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continuous investment and improvement in
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the area and at the same time, you know,
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making sure that this doesn't wreck, you
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know, u people's mental health and and
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whatever. So I think in that sense I was
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very happy I think it's quite impressive
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that the company did this. The question
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obviously moving forward is can they
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stick with it and what does it mean
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because it seems that some of the
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principles they have announced including
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answer independence saying you know the
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answers are not dictated by advertising
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or privacy settings or this you know we
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do not optimize for engagement. They are
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very admirable, but they do seem to go
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in direct opposition to short-term
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financial incentives where there is an
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incentive to optimize for engagement and
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gaining more eyeballs and more
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advertising space to sell to people. And
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so, in that sense, we'll have to see how
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this gets implemented.
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>> Stephano, great to talk to you as
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always. We will catch up again with you
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next month.
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>> Thank you. Then
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>> you got it. Stephano Pony, marketing
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professor here at the Wharton School and
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also co-director of the Wharton Human AI
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research program.
