Google’s Move into AI Ads Puts the Spotlight on OpenAI’s Monetization Strategy

When ChatGPT burst onto the scene, one of the first questions on everybody's minds was what this new paradigm shift could mean for Google's dominance in search advertising. If users turned to their friendly LLM of choice rather than Google search, would that mean the end of Google? 

Well, Google eventually caught up with its LLM, and some may argue that it has surpassed OpenAI with its latest Gemini 3 model. But now there is the thorny question of how to monetize user interactions with Gemini — and the first answer to that question is beginning to show up in the wild:

Google first announced in May that it would begin integrating ads into AI mode, and now we are seeing users encounter real-life examples in the wild.

The ads themselves are very underwhelming from an innovation standpoint; they appear just like sponsored search results at the bottom of an AI-generated answer. The added context of a protracted conversation-like experience gives Google even more fodder to target ads more precisely, but bolting sponsored ads onto the conversation rather than integrating them in any new, innovative way is uninspired. But it ultimately might be the right call.

Ad creative innovation might take the back seat to practicality and trust in the near term. Whether the capitalistic machinations of advertisers would surreptitiously influence LLMs has been a key ethical question when considering integrating advertising into LLMs, and the clear separation of answers and ads should assuage any concerns in the near term. 

Google has made its move into advertising within LLMs, and now all eyes are on when and how OpenAI will integrate advertising into ChatGPT. It sounds increasingly unlikely that OpenAI will weave advertising into ChatGPT's conversations with users. Altman looks to be angling for a more elegant commerce monetization opportunity:

He clearly thinks advertising corrupts the experience, but he stopped short of saying ads are off the table:

The only other hint of how advertising might manifest within ChatGPT comes from the inaugural episode of OpenAI's in-house podcast:

He then brings the conversation back toward the issue of trust and how advertising corrupts that experience. So what do we know to make a prediction? It’s sounding like the CEO of OpenAI is morally opposed to how advertising can corrupt a product's incentives, but also lauds advertising when it's "cool" or relevant.

One thing most people can agree on is that Instagram delivers extremely relevant ads relative to most other advertising experiences. Like Mr. Altman and many others, I have fallen victim to the extreme relevance of Instagram advertising, resulting in direct conversions for many an advertiser targeting my reels feed.

But my reels feed is reserved for mindless escapism while I use ChatGPT for serious research. While I can fly past an irrelevant reels ad with a flick of a thumb without a second thought, any whiff of ChatGPT steering me toward a product that would financially benefit from my attention would most certainly cause severe erosion of trust. 

Which brings us back to Google slapping a "sponsored" section onto its LLM outputs. While it lacks elegance, it creates a clear separation between organic answers and advertising. Users might not like their experience cluttered with ads, but at least they know their conversations with Gemini are uncorrupted and free of any monetary incentives that would sway them in a particular direction. All of that lives in the "sponsored" section. 

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Public markets might dictate how aggressively each company injects advertising into its chat experiences. 

Even though OpenAI remains private, many predict an IPO in late 2026 or early 2027, with the company targeting a $1 trillion valuation. There are 800 million weekly ChatGPT users, but only an estimated 5% pay for the service. OpenAI will, at the very least, have to put out a plan to monetize the 95% of its users who are free to justify a $1 trillion valuation.

The AI market froth has pulled back recently, and Google may feel pressure to demonstrate to the world that it's ready to shift its search revenue toward evolving user preferences for conversational LLM experiences. The company’s stock has shown remarkable resilience despite a market growing more fearful of an AI bubble, and Gemini's widespread rollout of advertising can assure investors it's ready to capitalize on a transition from search engines to answer engines.

OpenAI does have the luxury of seeing how Google's "sponsored" ads strategy plays out over the next year.

Even if it turns out to be the correct path, OpenAI can’t just flip a few switches to redirect a firehose of millions of individual advertisers from its search advertising business to its new AI product. OpenAI will have to build an advanced self-serve advertising platform on par with Google's offerings if it hopes ever to compete — a monumental task that would take years to realize fully. 

Sam Altman claims that OpenAI will hit $20 billion in revenue this year and is on track to reach hundreds of billions by 2030. Compare that to Google, which hit $350 billion in revenue in 2024. It's unclear whether Altman is factoring in advertising revenue potential into his future revenue projections, but he will have to figure out how to ramp revenue to pay for $1.4 trillion in infrastructure commitments. 

On the Bg2 podcast, Brad Gerstner recently asked Altman how he plans to pay for infrastructure commitments given his current revenue, and this didn’t make Sam happy. His defensive answer elicits even more questions, but it most likely demonstrates a CEO who knows more than the people asking the questions (and a man morally conflicted with advertising being the most obvious business model).

Subscriptions, API usage, licensing deals, and maybe even hardware will contribute to OpenAI's bottom line, but advertising is the most straightforward path to the hockey-stick revenue growth required in the short term and to help pay its ballooning infrastructure commitments.