How can startups and developers actually monetize their AI products? A startup called Koah, which recently raised $5 million in seed funding, is betting that ads will be a big part of the answer.
If you spend time online and interacting with the AI chatbot itself, there are many possibilities that you've seen a lot of ugly, AI-generated ads. Koah co-founder and CEO Nic Baird argued that it would inevitably change.
“When these things go outside of San Francisco, there's only one (profitable) way on a global scale,” Baird told TechCrunch on Zoom. “It happened over and over again.”
To be clear, Koah is not trying to introduce advertising to ChatGpt. (Maybe that's something Openai does on its own one day.) Instead, it focuses on the “long tail” of apps built on a larger model that includes user-based apps outside the US.
When consumer AI products first gained popularity, Baird suggested that it made sense to focus on “wealthy, pro-mer” users and monetize those users by converting some of them into paid subscriptions.
But now someone can build AI apps that reach millions of users in Latin America, and those users “don't pay $20 a month,” says Baird. So, developers can have a hard time bringing subscription revenue, but “it has the same inference costs as everyone else.”
Baird suggests that by understanding how to make ads work in AI chat, Koah can actually unlock the possibilities of the “Vibe Coded” app.
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In fact, Koah already offers ads on apps such as AI assistant Luzia, Parenting App Heal, Student Research Tool Liner, and Creative Platform Deepai. Its advertisers include Upwork, General Medicine and Skillshare.
These ads are marked as sponsored content and should appear at moments related to your chat. For example, if you are looking for advice on a startup's business strategy, the app can display upwork ads and connect with freelancers who can work with the company.
When Koah talks to the publisher, Baird believes that many people think ads don't work in AI chat, while others have limited success with AI products from older Adtech companies like Admob and Applovin.
But Baird said Koah is 4-5 times more effective, offering a click-through rate of 7.5%, and that early partners are making $10,000 in their first 30 days on the platform. He added that Koah achieves everything while not having a detrimental effect on user engagement, but his ultimate goal is to make Koah ads feel relevant enough to actually improve engagement.
Koah's seed round was led by Forerunner with participation from Andrew Karam, co-founder of South Park Commons and Applovin.
Pioneer partner Nicole Johnson reflected many of Baird's points when discussing investments via email. She said that when it comes to AI, it's monetization, “an elephant in the room between builders and investors.” Additionally, “Subscriptions are the standard for monetizing consumer AI services,” but focusing solely on subscriptions can lead to “fatigue and termination.”
“Multiple revenue models for consumer AI are inevitable. If internet services over the past decades are some metric, advertising plays a major role,” Johnson said. In her view, Koah is “building a monetisation layer essential to consumer AI services.”
As for where AI chat falls into the larger ad ecosystem, Baird and his team discovered that they represent the middle of the purchase funnel. This is somewhere between raising your Instagram ads awareness and real purchases that could be driven by Google search ads.
“People aren't trading on AI – they just aren't,” Baird said. They may ask the chatbot for recommendations or product details, but “they are going to google to buy.” So, part of Koah's challenge is to figure out the best way to capture the “commercial intent” of users.
“How can I display display ads in AI?” Baird said. Instead, he said, “What are users looking for, how do you give it to them?”