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An Update on The Evolution of Investing 101
Before I dive into my post this week, I wanted to share a few updates on some of the things I wrote about last week in The Future of Investing 101. First, you might notice I updated my domain from the atrocious investing1012dot0.substack.com to the slim and sexier, investing101.substack.com.
Most definitely a small thing, but meaningful for me as I try and pump up my efforts here.
The second thing is that this week is my first video post. As part of Contrary Research, we’re experimenting with shorter video takes on different topics rather than just our weekly Research Rundowns. But I thought I could share the video here as a test run for what I have coming up over the next few weeks.
I wrote last week about how important conversations are as an input to almost all of the topics I’ve written about here:
“When I end up talking to an investor friend or a founder or a group of students about a topic I've been jamming on, the insights from that are much more free flowing vs. writing from a cold start.”
So while this video is just a trial run, I’m excited to share that I’ve got a handful of conversations lined up over the next month that enable me to say “don’t just take my word for it” as I unpack the changing forces in venture.
Like I said last week, I’m just getting started in efforts to “improve the quality of my thinking machine.” Stay tuned!
Perplexity’s New Reality
As for what has been on my mind this week, it revolves around Perplexity’s introduction of advertising to their platform. In the video above, I explained how seeing this show up in results wasn’t a surprise because we’ve been covering this inevitable march towards ads for the last year or so. What was surprising to me was how this could still surprise people.
As Tom Loverro at IVP pointed out, “feels like yesterday people had a fit when Facebook introduced ads. And Gmail. And Instagram. And…it was all fine.” The natural aversion to advertising is, to me, confusing. Its ironic that a society that is so averse to paying for anything (journalism for example?) is also so averse to letting businesses find other ways to make money so they can keep doing the thing they want to do.
Granted, I don’t love the gaslighting that we’re getting from some of the execs at Perplexity. From the beginning of the company’s life it explicitly stated on its website that search should be “free from the influence of advertising-driven models.” Fast forward to April 2024 when the company first announced future plans to integrate ads into its platform. Perplexity’s Chief Business Officer, Dmitry Shevelenko, went as far as to say, “advertising was always part of how we’re going to build a great business.” C’mon bruh.
So step one, lets not be hypocritical. It’s fine to say you changed your mind. I’ve written before about how Jeff Bezos famously changed his mind about ads and admitted it. Back in 2009, he famously stated that “advertising is the price you pay for having an unremarkable product or service.” But despite that aversion, Amazon started running ads in 2012 and Bezos admitted he changed his mind in 2019. So I guess give Perplexity 10 years to admit their initial stance was untenable.
For me, the bigger question isn’t “does advertising fundamentally make a product worse?” It’s more about “can this business sustainably run ads without making the product suck?” That’s, I think, what people should be more focused on.
Perplexity is trying to offer something akin to an advertising-clean product; like the chocolate milk protein my wife and I buy because they’re “clean.” For example, the company has significantly limited the customizability of these ads by limiting advertisers in terms of both editorial control over the sponsored content and advertiser’s access to user data in order to better target their ad efforts. As a result, many marketing analysts are skeptical about the actual potential for Perplexity’s ad product.
First, Perplexity represents a significantly smaller user base. For reference, Perplexity reported 20 million queries per day as of December 2024. Each query would likely represent one ad placement. For comparison, Google sees 8.5 billion searches each day. Second, Perplexity’s audience is very specific, and skewed towards “educated, high-income professionals who may be in senior leadership at their companies.” This has led Perplexity to price its ad inventory at a premium to Google’s more generalized audience. Finally, Perplexity’s audience may be geographically quite skewed as well with potentially 50% of its users being in India or Indonesia.
On top of all of this, Perplexity is reportedly not sharing user data with advertisers which will make targeting specific ad campaigns much more difficult. All of this means that the risk for Perplexity will be whether it can scale an audience base quickly enough to attract advertisers before more traditional platforms, like Google or OpenAI, can build similar functionality that is more attractive to advertisers.
Businesses shouldn’t be ashamed of the ways they make money (unless they’re… you know… illegal or immoral.) Businesses also shouldn’t lie about how they make money. Pretending like you don’t care about advertisers if, in fact, advertisers are the only way your business can survive is disingenuous.
But I also think consumers shouldn’t be naive to the business models they’re a part of. I’ve written before about a great quote from an old 2010 tweet credited to Bryce Roberts:
"If you're not paying for it, you're not the customer; you're the product being sold."
Don’t be naive about that. Just acknowledge the fact that if you want free / cheap / subsidized stuff, you need to be okay with being served ads. If you feel like the presence of advertising dramatically damages your user experience, then vote with your feet.
People complain about how the number of pixels at the top of a Google search has increased with the number of ads. But people… you just need to either scroll down a little quicker, like I do, or use something else. The pearl-clutching about Perplexity running ads is a little much for me. Instead, we should just be honest. What kind of business do you want to build? Or what kind of business do you want to support? Anything else is just fodder for Twitter fights.
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