Opinion: OpenAI may be fastest to $1 billion ad revenue in under seven months

Less than seven months after launching its ad product, OpenAI's ChatGPT reached $1 billion in annualized ad revenue.

OpenAI may be the fastest business to reach that milestone with a digital product ever. Today's digital advertising leaders, including Alphabet (Nasdaq: GOOG) (Nasdaq: GOOGL), Meta Platforms, and Amazon, took several years from ad launch to reach $1 billiion in annual revenue. ChatGPT's comparatively rapid growth is a sign of OpenAI's huge potential, and for advertising on chatbot platforms more generally.

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How OpenAI got to $1 billion

Alphabet, Meta, and Amazon have all demonstrated how to build massive digital advertising businesses, and OpenAI took that model and ran with it, selling lucrative space on its platform to tens of thousands of advertisers. Among its biggest advertisers are Booking Holdings, Intuit, Home Depot, and L.L. Bean, showing that it's serving a wide range of ad verticals.

ChatGPT charges a similar rate to Google for ads, showing the chatbot is comparable to search in its value to advertisers. ChatGPT ads have lower click-through rates than Google because the chatbot is more conversational, and Google searches are often from users who are ready to buy. ChatGPT also has fewer users than Google Search, though the chatbot has reached 1 billion weekly active users.

As another sign of its potential, ChatGPT hit that milestone only by selling ads in North America. At the beginning of the month, it announced that it expanded ads to more than 40 countries, including India, and across Europe, the Middle East, and North Africa.

It also opened the ad product up to small and medium-sized businesses, which now represent a significant share of the business. Even though it's already reached $1 billion in ad revenue, OpenAI appears to just be getting started with the rollout of its ad product.

Why it's great news for AI stocks

Advertising may be the most successful business model of the digital era. Alphabet and Meta, the two biggest digital advertising businesses, have made a mint from selling ads on their properties, and Amazon followed the same strategy when it began selling ads on its e-commerce site. For all three, advertising represents a massive, high-growth, high-margin business.