Perplexity Hits 10 Million MAUs and Closes $73.6M in Funding for its Answer Engine
Defining the transition from search engines to answer engines
Perplexity AI launched its generative AI-powered “answer engine” one year ago, and today, it said it has 10 million monthly active users (MAU). It also closed a $73.6 million funding round led by IVP. Also included in the round are new investors NVIDIA, Amazon founder Jeff Bezos “through Bezos expeditions,” Shopify co-founder Tobi Lutke, and several other notable angel investors and venture capital firms.
Breaking Down the Numbers
TechCrunch reported that the company’s current valuation is $520 million and it is generating between $5 - $10 million in annual revenue. It is hard to estimate a valuation multiple because it is unclear whether the figures represent trailing 12 months revenue estimates or a forward-looking run rate. Either way, it is a healthy valuation.
The new funding brings Perplexity’s total investment to about $99 million according to Crunchbase. The company announced a $25 million funding round in Q1 2023, and raised about $3 million in the fall of 2022.
Perplexity has not released information on what proportion of its MAUs are paying subscribers. However, if the $5-$10M figure is correct, the $20 per month plan suggests there may be between 20,000 to 40,000 paying users. Granted that figures may reflect double that amount if they area based on run rate business and you incorporate growth.
Regardless, it appears that less than 1% of MAUs have chosen to become subscribers. Synthedia estimates that ChatGPT’s conversion rate to paid users was 2-3% before the company released GPTs and we suspect it is significantly higher today.
Answers, Not Links
When Perplexity launched, it was powered by GPT-3.5 along with search algorithms. Its nearest competitors were ChatGPT and You.com. However, the former did not have persistent internet connectivity and was relegated to regurgitating information from 2021 or earlier. The latter had a tremendous problem with hallucinations, particularly with source links and people’s biographies. Perplexity was a breath of fresh air.
Google, Bing, and other search engines answered queries by suggesting links to websites that might have an answer. Perplexity just answered the question. Every search question suddenly had an “answer box” style answer with more depth and multiple sources. Perplexity solves a user problem. Traditional search only helps people get closer to solving a problem on their own. As Perplexisty CEO Aravind Srinivas said in a blog post:
With Perplexity’s search tools, users get instant, reliable answers to any question with complete sources and citations included. There is no need to click on different links, compare answers, or endlessly dig for information. In an era where misinformation and AI hallucinations are causing increasing concern, we’re built on the idea that accuracy and transparency are prerequisites to making AI-powered search ubiquitous. The times of sifting through SEO spam, sponsored links, and multiple web pages will be replaced by a much more efficient way to consume and share information, propelling our society into a new era of accelerated learning and research.
In addition, many people have not yet recognized another important benefit of generative AI-powered search engines. After you receive an “asnwer” you can continue the search “conversation” and Perplexity (and similar solutions) will maintain context and build on the information sharing. It is transformational when you don’t have to ask every question as if it was the first in a series. The solution makes working with generative search more like receiving assistant from a human domain expert, but better.
The Search Transition
The Google model of search was revelatory when it first arrived. It solved a significant problem and was superior to the alternatives. However, that was more than 20 years ago. Search has improved, but it has remained “search.” Google seemingly undertook the transition to answers tepidly and without enthusiasm.
Granted, this is understandable. The shift to answers fundamentally undermines the economic model that Google has so carefully curated. Generative AI made the shift to “answers” scalable with high quality, and Perplexity is defining the new user experience: an answer engine that doubles as a research copilot.
I named Perplexity my first stop for most search tasks early in the year and my favorite ChatGPT alternative in May. Bing followed with Bing Chat (now called Copilot), Google provided limited access to search generative experience (Google SGE), and ChatGPT added persistent internet access. Still, Perplexity continued to impress.
The company added a Copilot mode connected to OpenAI’s GPT-4 model, diversified by adding access to new models such as Llama 2 and Anthropic, expanded features to include voice input and image search, and launched apps for iOS and Android. Ten million active users is not a lot compared with more than three billion for Google Search and 100 million daily users for Bing Search, but it is significant progress. It is one viral moment away from broad awareness and adoption.
The company also has introduced enterprise APIs to access its generative AI models for knowledge discovery, search, and research. Normally, I would be skeptical of a consumer application shifting into enterprise capabilities, and it will not be easy managing the vastly different priorities of the two groups. However, I suspect this could be a successful product extension.
Most generative AI solutions today are being developed with the flexibility to connect with third-party services. Perplexity’s API could be the easiest path to enable companies with knowledge bots and assistants that want to add real-time information access features.
The number one enterprise solution for generative AI today is knowledge search assistants. That was a secondary use case for consumers in 2023, but will move up in importance in 2024. Perplexity is going to benefit from that adoption growth.
Google will continue to have the largest user base, even for generative AI search. It already has the largest user base for traditional search, so migration of existing users will give it a strong lead in user base. Microsoft has already learned how hard it is to peel away Google search users to Bing, even with a superior generative AI search offering.
However, Perplexity’s opening is that Google wants to maintain traditional search for as long as possible. Attempting to sustain the old model will slow its user transition to the new “answer engine” paradigm, and Perplexity has a chance to define how the new search experience evolves.
