There is a scene in The Social Network, David Fincher's 2010 masterpiece about the creation of Facebook, in which the entrepreneur Sean Parker settles a debate over whether to host advertisements on the social-media platform.
Sell ad space too early and you will irritate users, Parker, played by Justin Timberlake, tells a star-struck Mark Zuckerberg, now the CEO of Meta Platforms. Stay patient, grow the platform, and you can build a much bigger business.
"A million dollars isn't cool," Parker says. "You know what's cool? A billion dollars."
Just ask OpenAI. The artificial-intelligence lab's ad business reached $1 billion in annualized revenue run rate, it announced Monday. The growing revenue stream is a boon for OpenAI ahead of its initial public offering and a potential threat to other internet stocks.
OpenAI launched ads in its ChatGPT chatbot less than 200 days ago, and in May began allowing advertisers in select countries to buy space through a self-service platform. The company on Monday will expand self-service access to more markets across Europe, North Africa, the Middle East, and South Asia.
True to the semi-fictionalized Parker's advice, OpenAI waited for ChatGPT to get enormous before serving ads. With more than a billion weekly active users, ChatGPT is the most popular consumer chatbot and an attractive new destination for advertisers.
"This is the rare moment when a major ad channel is still wide open," Harel Amir, head of product at Similarweb Ad Intelligence, said in a statement last week. "The advertisers who can see what's happening with AI ads now will have a real head start."
Similarweb data show 26% of ChatGPT responses contain a sponsored ad. These ads appear when a conversation indicates the user has intent to purchase something.
Ads are still a small part of OpenAI's business. Total revenue was $6.7 billion in the quarter ended in June, and growth picked up in July, The Wall Street Journal reported earlier this month, citing people familiar with the matter.
But a booming ad business could help OpenAI close the gap with its rival Anthropic, which posted $11.6 billion in revenue in the June quarter, the Journal reported.
Anthropic's early focus on enterprise AI tools and coding assistants has paid off ahead of its own IPO. However, Anthropic has so far resisted serving ads in its Claude chatbot, which has a smaller consumer footprint than ChatGPT.
"We want our users to trust Claude to help them keep thinking," Anthropic wrote in a blog post earlier this year. "Open a notebook, pick up a well-crafted tool, or stand in front of a clean chalkboard, and there are no ads in sight."
That was basically Zuckerberg's stance in The Social Network. In real life, Facebook held off on introducing widespread ads until late 2007. It took the company until 2010 to pass $1 billion in annual revenue, though $1 billion meant a lot more back then.
Investors seem to be taking OpenAI's ad business seriously. Internet and social-media stocks dependent on digital advertising fell on Monday, though it wasn't immediately clear if OpenAI's $1 billion victory lap was the culprit.
Meta was down 1.2%, Google parent Alphabet dropped 2.5%, and Pinterest tumbled 7%. Reddit, which licenses data to OpenAI to help fuel ChatGPT, was down 3.4%. Reddit was a Barron's stock pick last month based on the potential of its data-licensing business.
The logic is simple: There are only a finite number of ad dollars to go around. Add ChatGPT and its billion-plus users to the mix, and the world's largest ad platforms may have a new competitor.