Leading Local Insights
Leading Local Insights
ChatGPT Ads Hit One Billion
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OpenAI’s ad business has reached a $1 billion annualized revenue rate after roughly 200 days, signaling that ChatGPT ads are moving quickly from experiment to ecosystem. In this Leading Local Insights Podcast episode, BIA’s Celine Matthiessen and Mike Boland explore what’s driving that growth, how ChatGPT’s advertising model is evolving, and what its global expansion could mean for advertisers and local businesses.
They also take a closer look at the ad experience, including sponsored recommendations, links and product carousels, along with the bigger questions around user trust, privacy, targeting and performance.
Looking ahead, they discuss the potential impact of self-service advertising, lower spending requirements and third-party ad tech integrations, and what OpenAI will need to improve as it competes with established advertising platforms.
Why OpenAI Ads Suddenly Matter
Celine MatthiessenWelcome back to the BIA Advisory Services Leading Local Podcast. I'm Celine Matizen, VP of Insights and Analysis, and I'm here with my colleague Mike Boland. If you caught our last episode, I think Mike, it was back in May, covering OpenAI's strategic entry into the advertising market with ChatGPT. Well, we're following up with some big updates. OpenAI just hit a major milestone with its ad business, and there's news on international expansion. We'll connect these latest developments with what we discussed last time and break down what it all means for the industry. Hey, good afternoon, Mike.
Mike BolandHi, Celine. Good to be with you.
Celine MatthiessenGreat. So let's just jump right in.
A One Billion Run Rate Explained
Celine MatthiessenOpenAI just announced that its ad business has reached a billion annualized revenue rate. Wow. A staggering number for a business that's only been alive for about 200 days. So what stands out to you in this update?
Mike BolandYeah. And you're right, Celine. This is a good follow-up to that first podcast we did to sort of introduce what they were doing. And we we did a lot of speculation on that one. So now this is kind of full circle, and like, you know, we can see what actually happened, or at least until now. So anyway, to answer your question, I think the stand the thing that stands out is like the sheer number. I think prior to this, it was all guesswork, right? Analysts like us have to sort of triangulate and speculate. And this gives us a more concrete and reliable first party figure. So that makes our lives easier for one thing. But I think more importantly, all those signals we were tracking were sort of all over the map about the sort of anecdotal evidence of the effectiveness of different campaigns. I talked to a lot of like search agencies and what they're seeing. We can get into that in a minute. Um, but but I think to put that number into perspective, like if we look at a billion and as a run rate, like what does that mean? So, first of all, it's a run rate. I think we all know what a run rate is, but just to sort of pull on that thread, um, it it's it's not a billion in revenue, you know, now or even in in in calendar year 2026, but rather the annualized figure based on the revenue they're seeing now. So if the fiscal calendar ran from now until 12 months from now and their current pace sustains, they're looking at a billion in revenue. So it's that sort of hypothetical exercise, but it's based on today's reality. So it's valid. And I think to put that into perspective, that like 1 billion figure, I think we all know what a billion is, it's you know, a thousand million. But in this context, it's interesting. So if we look at the top players in ad revenue, um, so so like if we look at the duopoly, right? Google and meta. Google has about 300 billion in in annual ad revenue. Meta's at about 200 billion, um, and then it sort of fragments from there. Amazon's in third place with about 70 billion. Um, so so 1 billion is small in those terms, but I think the key point is what you said, Celine, which is that they were able to do this in 200 days. So I think that's the key part, the momentum and the headroom, and they're sort of matching the momentum they're seeing on the user side with just like usage growth exploding across the board in AI, not just not just OpenAI and ChatGPT. Um, so I think to answer your question, that's what stands out. It's the fact that they're they've been able to do this so quickly. And I think that that makes it really potentially disruptive to the ad ecosystem as we know it.
Celine MatthiessenYeah, they definitely put a spotlight on them for the big three to say, hey, look what we're doing.
unknownRight?
Mike BolandYep. They put them on notice.
Celine MatthiessenThe you know, this there was a CNBC
How Big This Looks Next To Google
Celine Matthiessenpiece that highlighted uh ChatGPT ads and announced now, you know, speaking of run rate, um, they're available in over 40 countries with um self-service rolling out in India, Europe, and the Middle East and North Africa. So how significant is this global expansion?
Mike BolandYeah, I think it is, but but it's sort of just table stakes, right? Like you limit your addressable market without global reach because you're not applicable to like a wide swath of Fortune 500 companies that that operate on a global scale. So I think this was a logical part of their evolution. They were really in sort of beta testing and piloting in a lot of ways, rolling it out slowly. So I think this is a logical jump. But I think that um, you know, in in that light, I think it's something that will accelerate their path to 2 billion, 10 billion, so on.
Celine MatthiessenRight. Yeah. Um, excuse me, open AI claims it's as are clearly labeled, doesn't influence answers, and that advertisers can can't access private conversations. Uh how poor important is this for advertisers and for users?
Mike BolandYeah, well, it's it's critical for something that a technology that inherently has so many trust issues. So, like anything advertising based um is gonna have some sort of trust headwinds, right? Um, in the sort of era of privacy. I think open AI or anyone in AI is sort of doubly um at risk of of of a privacy backlash because it's already a technology that sort of has some sort of some bad juju and you know it's political capital and all of that. Um, but I think that it's important too. I like your question because let's let's like step back and contextualize these ads themselves, right? You know, what are they? While we're at it, what what's the history of the program? Um and that's some of the stuff we covered in that previous episode, as you noted, but let's sort of like briefly level set on some of those for those unfamiliar and sort of get everyone up to speed. So if we if we sort of rewind, start at the beginning, um, OpenAI made the the surprising and the unsurprising move. I think that's the way I put it in our last podcast, um, back at the beginning of the year to to enter this world of advert ad monetization. And I say unsurprising because it's it's sort of a logical monetization path for something that runs parallel to search in a lot of ways, and that it's a high-intent medium. You know, ad support's very logical there. But it was surprising because Sam Altman had previously been quite public about the sort of the evils of ad support when it comes to sort of maintaining trust and objectivity of a search engine, or in this case, an AI engine. And a lot of those comments we take with a grain of salt because they were sort of like, you know, jabs at at Google. Um, but but anyway, now, despite what he said, you know, whether it was about Google or not, and they're now jumping into it. And I and I think that an important question to ask is why, like why are they doing this? Because I think that helps triangulate the the what and and what comes next, um, and some of your your privacy stuff that you asked about. Um and I think the biggest reason is that, you know, it's it's facing a
Global Rollout And Self Service Expansion
Mike Bolandlooming IPO that everyone's talking about, that that's sort of around the corner. At the same time, anthropic continues to take share of its core business and pull ahead in the enterprise. So I think this is just really a revenue diversification play. So that covers the why. As for the what, um, I think that it's important to point out the ad program roll down. We talked about this last time, but again, to level set, it had its share of growing pains. You know, the initial set of options were limited, the CPMs were high, they were high as $60. There was a $200,000 campaign minimum. There, there weren't any performance-based options, right? Which you'd expect for a search-like ad format. Um, but then since then, it's it's really eased up on a lot of those restrictions, lowered the CPMs, lowered the spending floor, um, has its CPC options now, and and more importantly, it's partnered with several third-party ad managers, which I think we can get into in a little while. Um, you know, ad managers in the ad tech realm that sort of bring Chat GPT advertising in to a familiar environment where a lot of brand marketers and local businesses will sort of manage their campaigns. So it so it gave them the sort of one-stop shop. So I think with all those concessions, it's doing a lot better. Um, and this comes back to the billion figure because now we know the dollar value of those outcomes. Um, but a lot more to say about the sort of ad units and what they look like and all that kind of stuff. But I'll I'll pause there in terms of just like sort of some of the backdrop for all of this.
Celine MatthiessenYeah, well, I I feel like again, the consumer side of it, I think you know, they're very smart because they've seen from the history with Google and Facebook, with Meta, um, the consumer backlash for privacy. Totally. Um, I mean, I was on ChatGPT today and I got served, I got served an ad with like a lot of warning labels around it, like a cigarette, like cigarette carton. We don't endorse this. But you know, I feel like in some ways, when at least for me from a user perspective, I'm using Chat GPT to um
Trust Promises Privacy And User Backlash
Celine Matthiessensolve problems, look at things differently, but I'm communicating like it's you. And like if you all of a sudden I asked you a question, like, hey Mike, it's raining outside, should I get an umbrella? Should I wear an umbrella, get an umbrella, or what do you think? And you came back and said, Oh yeah. And by the way, here's one you can purchase on Amazon. You know, like it like the authenticity of that is uh something that they're gonna be able to do.
Mike BolandYeah, you start to question it. Like we're I think our brains are very smart to know where we're being sold to. And it's sort of that moment where you're like, wait a minute. But I think also on that point of privacy, it's interesting because one of Chat GPT's greatest strength is also its greatest weakness when it comes to privacy. So one of the things that ChatGPT, not the ad program, but just the inherent product, prides itself in is having a memory, right? So it will answer questions within the context of your historical questions if you're signed in and what it knows about you. It knows that, like, you know, you're a craft beer connoisseur or you live in suburban Cleveland and you have two kids and you have a dog, and it will sort of like answer in that way. And sometimes you get those answers back with that level of specificity, specificity, excuse me, that like it can be like, oh, cool, you know, that saves me some time. It knows me. But it's also for some people that can be sort of creepy. So again, it's sort of a double-edged sword there with the privacy stuff.
Celine MatthiessenWell, also dangerous. This is really funny. I read an article this morning that a bunch of hikers uh used, I don't know if it was chat, it wasn't chat, it was some AI program, some AI agent, I should say it's not a program, AI agent, um, to do a hike and they um they fouled it for you know, if they followed what AI suggested, ended up having to be rescued.
Mike BolandYeah.
Celine MatthiessenSo I mean, things like that. I mean, I, you know, things like that happened, but that just reminded me that I'm like, oh, okay. Yeah. Well, so speaking of Apple Maps.
Mike BolandYou know what that reminds me of before you go on?
Celine MatthiessenYeah.
Mike BolandUm, remember when Google, not Google Maps, Apple Maps first came up.
Celine MatthiessenOh, yeah.
Mike BolandAnd it was, it was a typical Apple move. Like it was all about like they had the best UX and elegant design and everything, but they didn't realize out of the bat that, like, oh, if you're gonna run a mapping product, it just can't be about just like, you know, uh an elegant user experience. Like, you gotta have all the data, you gotta know what you're doing. And and I think we called it at the time Map Gate. Remember Map Gate? Oh, yes. And it was just so awful out of the gate. And to your point about like sending hikers towards their you know, potential demise, you know, Apple Maps was like, I don't think it ever ended up being like fate fate, like fatalities, but they were doing things like leaving people off cliffs, and like, of course, that you know, before someone actually drove off the cliff, they're you know, they realized that this was wrong, but it was sending people into dangerous situations. And it reminds me of that, and that's that's early days of of new products. And it's also the interesting side note there is kind of the hubris. Like, we might get into this in a little while in terms of like OpenAI, they have so much momentum, they're the hot company, and they think, oh, we're just gonna launch an ad program and then go up against Google that's been doing it for like 30 years, right? And and I think that I want to get into this in a little while, but some of their actual execution and performance and ad targeting is need some work. Um, but anyway, it's that sort of early stage hubris that like what like what Apple did with Apple Maps. We're Apple, of course we can do this. And it's like, well, it's a little harder than we thought.
Celine MatthiessenAnyway, yeah, well, and product-wise too, OpenAI started with sponsored rec sponsored recommendation boxes, you know, contextual links and product carousels uh for their first ad formats. I I've seen a bunch of them. And I can tell you the uh product carousels really help speed up my uh yeah. But what do you what do you think is coming next? I mean, I'm guessing maybe video, right? What do you think?
Mike BolandYeah, I have a lot of thoughts on what's coming next, but I'm glad you
What ChatGPT Ads Actually Look Like
Mike Bolandjust uh touched on like the formats they have now. In the spirit of I keep saying we're in a level set, even though we went over this in the last podcast. Let's briefly talk about what they have now, like from the user perspective. I don't know if everyone's familiar with this. So just a quick level set. There are three main ad units. You mentioned one of them, the the carousel. So the first one is like a sponsored recommendation box. And this is the closest to like a Google ad, what you might expect in a Google ad. It's a it's an off-color shaded box in the result set or the question that's being answered that will have some sort of ad copy. And it's, you know, obviously going to be contextually irrelevant to what you searched for. The second one is links. So, as you know, and most people know listening, there are citations currently in a lot of the answers. I think because of AI's trust issues, it's it always wants to show its source, show, you know, show your work. Like it's like uh seventh grade, you know, algebra, show your work. Um, it's doing that. Google's doing it too. It's citations, right? Like it's like, here's where we got this, just so you know we're not making it up. So those citations are now also going to be that that ad inventory is gonna be fodder for sponsored links. Um, and they're gonna be well differentiated in terms of the UX and what they look like. I think they're gonna be different colors. So that's the second one. First one, sponsored ad, second one, sponsored links. The third one you mentioned, which is um like a product carousel. And that's really just a lot like Google Shopping, image-based ad units that that it's like a sort of slider that you can flip through in terms of um available products. So that's what they have now. Um to get to your question about what's coming next, I think a few things. Video for sure. I think that was a that was a good call. Um, but I would delineate the answer into two things: more formats and better targeting. So the formats, I think we're gonna see more things that are transactional and action-oriented, more buttons to buy or book, that kind of thing. That follows an evolution of, you know, Google, Google has done that, right? It leads to zero-click search where you're spending more time just within the Google, you know, answer. And the their sort of excuse for doing that is it's better for the user experience, you know, less clicks. Uh, but I think really what they're going for is to be positioned as like owning the entire funnel. It all happens under their roof. They can better monetize the whole thing with affiliate revenue and just they if they own the whole funnel, obviously. So, so so more formats with calls to action. That's one thing. And I think video is another one, to your point. And then that second category of better targeting, this gets to what I was alluding to earlier. And backing up a bit, there's some evidence that these ads, despite this big revenue milestone we're we're looking at today, um, they don't convert that well. I've talked to a few search marketing agencies that are running campaigns on ChatGPT, and they tell me that the conversion rates are actually terrible. The traffic's low quality, it bounces quickly, it doesn't convert, um, which is surprising because again, this is such a high intent medium. You'd think you you'd end up with the right quality users looking to buy something. But I think that what's falling down there is it's a function of OpenAI's sort of ad targeting algorithms. You know, we're just 200 days in. Um,
What Comes Next Formats And Targeting
Mike Bolandand I think that they're just not gonna be naturally, this is what you would expect, not as sophisticated and performant as the likes of Google that's been perfecting those mechanisms for like 30 years. So I think that's the second thing I think is gonna get a lot better or change to answer your question, which is the back-end stuff, the targeting capabilities, the refining, get giving advertisers better, more quality, higher converting traffic.
Celine MatthiessenYeah, great. I yeah, I think they have a long way to go with that for sure. And you know, speaking of that, so they've jumped into self-service access internationally. And, you know, what does that look like for local advertisers? Is there real potential for small businesses? Even I'm gonna kind of also throw in they dropped their minimums, which of uh 200, 200k spend and 60 CPMs. So that's an indication that they're moving downstream into local and to small businesses. So, what do you think the future, or what can you predict, or what do you think is gonna happen uh there?
Mike BolandYeah, I think you're you're right on there. One of the things that is going to open this up and lower the barriers to adoption is going to be yeah, lowering that like cost-prohibited caps that they had for a lot of local businesses. So that's number one. Um I think that there are, there's another thing too. I I think I mentioned this earlier, but I'll I'll expand on it. There are several third-party ad managers that are starting to integrate ChatGPT ads. So it sort of meets marketers where they live. I think that's gonna be a big move because right now, the one of the barriers in getting into it is this sort of intimidation of learning a new tool, having to go start a new account. And if it's sort of integrated into sort of the third-party ad tech sort of dashboard or ad manager you're already using, um, I think that's gonna be that's gonna be key to sort of lowering some of those barriers. Um, one example there is there's a company called AdBridge that offers a product where it'll sort of take your Google AdWords campaign and essentially convert it into a chat GPT ad campaign. So that's all of your like your campaign goals, your your targeted keywords, your spend limit, and it'll sort of translate that into Chat GPT sort of corresponding functions. So I think we're gonna start to see a lot more of that as a the sort of ad tech ecosystem opportunistically jumps on this. And I think the result of that self-interested sort of land grab is gonna be more optionality, lowered barriers, and frankly, lowered cost because we're talking about bid marketplaces here. Um and actually, as more people flood in, it could bid up the cost in certain areas. But um, but I think that all of those things in a net basis is gonna lower the barriers and and get more SMBs sort of into the mix here. And not just SMBs, I say SMBs. We we should like mid-level.
Celine MatthiessenYeah.
Mike BolandYeah, mid-level two, low local businesses, right? I mean, that's everything from mom and pops to like the car dealership, um, and you know, the multi-location franchises. Yeah, totally. All of them.
Celine MatthiessenSo and it also too, like in some ways for brands like state, like speaking of like franchise and local, like State Farm, where they have you know, national buys. Local agents.
Mike BolandYeah.
Celine MatthiessenYeah, they're local agent buys then would start it.
Mike BolandYeah, they might have co-op dollars and some some support, some marketing support from the mothership. Um,
Local And SMB Opportunity Through Ad Tech
Mike Bolandabsolutely.
Celine MatthiessenRight. Yeah. Well, I think the third party to the um you know, Chat GBT partnering to get um, you know, customers to use to partner with, you know, retailers to get on their retail media networks or on their sites to be used, right? That's where they're gonna really um get headway and get eyes because the other thing they have to do is get the get the local eyes in local places for for um and that's always been a challenge as we know in local is coming up with the local traffic and audiences. Absolutely. So so well, okay. So lastly, I think we've we've we've done, you know, you've done a great job and you've answered all my questions. The what's the future? What what's the other new revenue milestone? Or what do you think their revenue milestone is going to be in uh with the continued global rollout and all the enhancements for their business? What do you think?
Mike BolandYeah, like the global thing you mentioned, the other moves they're making, I think that they'll accelerate the revenue growth, like 200 days to a billion. Let's see how long it takes them to get to 2 billion and if that's less than 200 days.
Celine MatthiessenUm I think they're seeing they announced announced yet where if they're gonna IPO or when?
Mike BolandUh we I don't think we know that date yet, but everyone's talking about it as if it's sort of around the corner. So we'll see. I think there's a lot of pressure for them to do that, but they're also waiting for the right moment because they do have like they have to take this story on the road, all that typical IPO roadshow stuff. And I think they want to make sure they're in the strongest position to do so. So I think they were waiting for a few milestones like this that sort of bolsters that narrative. Um, and they're also rolling out things that really compete more aggressively with anthropic in the enterprise where anthropic has seen the most gains. So I think they want to like go into that roadshow from the strongest possible position. So I think they're sort of, you know, angling themselves and and then we'll we'll see that. I think probably pretty sometime soon.
Celine MatthiessenOh, you think sometime sooner or do you think like maybe 20 like 2027, like first quarter 2027?
Mike BolandYeah, I I think when I say sometime soon, I don't mean days. It's probably in the next few quarters. Yeah.
Celine MatthiessenOkay, yeah. That's what I was gonna say.
Mike BolandThey need some time to get some more um yeah, some more wind behind their sails.
Celine MatthiessenYeah, or stars or whatever.
Mike BolandYeah. Well, I mean, it's the kids' stuff, right?
Celine MatthiessenSchool. Um Mike, that was a great breakdown. And thank you so much for being here today and sharing your thoughts and insights as always. Um, looking forward to what are we gonna do next, right? We've got another one that we might be talking about, maybe some Apple.
Mike BolandYeah, so maybe that's a good idea. T T's our next one. We've been kind of throwing around the idea about doing an upcoming episode that looks at Apple's latest move as it relates to, you know, our bread and butter here, which is of course local advertising, Apple Maps. And we talked about maps earlier, of course, but this is in a different light. They, for the first time in, I think Maps came out in what, like around the 2010 timeframe, so 15 years or so, uh, for the first time are rolling out ads in maps. Google Maps has been doing this forever, and now Apple Maps will have ads in the mix. Um, it's sort of a contentious topic among sort of Apple fans that want to keep it an ad-free environment. But Apple, like we talked about for OpenAI, is in a position where it needs to diversify its revenue as the iPhone, its cash cow, continues to reach sort of global deceleration in its growth and hits sort of uh global saturation. So it's, you know, bolstering other revenue categories, everything from services, right? Like Apple TV, Apple Music, Apple One subscription, iCloud, all of that. It's it's really diversifying with a lot of that stuff. And one of its diversification moves in that mix is advertising. Right now, the only form of advertising it has is app store advertising. Like you go into
IPO Timing And Apple Maps Ads Teaser
Mike Bolandthe app store, you search for something, it's a search-based ad for something else, try this app instead, et cetera. So um, it's gonna be interesting to see like it grow its ad program and in a way that's very relevant for us in local. So I think we'll dive into that and what we're seeing so far.
Celine MatthiessenThat sounds great. I'm looking forward to it. And for everyone out there listening, thank you for joining us as well. We hope you are enjoying our podcast this year. And if you have any topics that you'd like to suggest or want to come on as a guest, reach out to us at podcast@ BIA.com. We look forward to bringing you more insightful conversations on local media throughout the year ahead or the end of the year and the year ahead, right? Um, so have a great day. Thank you. Thank you, Mike.
Mike BolandThanks.