In graphic detail: Six thousand brands later, ChatGPT ads still have a conversion problem
ChatGPT's ad business is growing, with more brands testing the platform, but conversion rates remain a challenge. The company aims to increase ad revenue quickly.
Original reporting · digiday.com
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How this was written. 1to1 wrote this article with a language model from Digiday’s reporting (model: @cf/meta/llama-3.3-70b-instruct-fp8-fast); it describes that reporting rather than adding to it. The original, linked above, is the full story.
Key points from Digiday’s report
- ChatGPT's ad business is expanding, but revenue growth is currently lagging behind usage numbers.
- The platform's addressable audience is substantial, with potential for growth in existing markets.
- Advertiser spending on ChatGPT is becoming more diverse, with a broader range of sectors participating.
- The number of brands advertising on ChatGPT is increasing rapidly, driven by the platform's growing market presence.
- ChatGPT faces challenges in converting ad clicks into sales, with lower revenue per session and conversion rates compared to established platforms.
ChatGPT, a platform handling a significant portion of search queries, is working to expand its advertising business. According to Digiday, the company has been cautious about introducing ads to its users. As a result, advertising revenue is currently lower than usage numbers would suggest.
The platform's addressable audience is substantial, with room for growth in existing markets. Data from Similarweb and Graphite shows that fewer than half of eligible users in key markets are seeing ads, indicating potential for expansion. The variation in ad reach across markets may be due to the rollout pace or monetization strategies.
Advertiser spending on ChatGPT is becoming more diverse, with a broader range of sectors participating. Sensor Tower data indicates that while shopping was initially the dominant sector, financial services, software, and travel have increased their share of ad spend over time. This shift suggests that ChatGPT is attracting a wider range of advertisers beyond retail.
The number of brands advertising on ChatGPT is increasing rapidly, with data from Adthena showing significant growth in the number of distinct brands running ads on the platform. This expansion is likely driven by the platform's growing market presence and advertising capabilities. As more brands enter the market, the potential for revenue growth increases.
To achieve significant revenue growth, OpenAI will need to address the challenge of converting ad clicks into sales. Research suggests that ChatGPT ads currently generate less revenue per session compared to established platforms like Google Search. Additionally, conversion rates for ChatGPT ads are lower, which may impact advertiser demand and revenue growth.
New Street Research has modeled the potential growth of commercial chats on ChatGPT, predicting a significant increase in ad opportunities by 2030. However, the company notes that monetization strategies will play a crucial role in determining revenue. OpenAI's use of cost-per-click and outcome-optimized bidding may positively impact revenue, but the company must also address ongoing measurement issues.
Questions and answers
How big is ChatGPT's addressable audience?
The platform's addressable audience is substantial, with fewer than half of eligible users in key markets currently seeing ads.
What sectors are spending on ChatGPT ads?
A broader range of sectors, including financial services, software, and travel, are increasing their share of ad spend on the platform.
What is the challenge facing ChatGPT's ad business?
The platform faces challenges in converting ad clicks into sales, with lower revenue per session and conversion rates compared to established platforms like Google Search.
