How to Make ChatGPT Ads Not Suck

Today on the AI Daily Brief, we are talking about OpenAI's announcement that ads are as they were always inevitably going to "coming to ChatcheeBee" team. The question is, can they make them not suck, and I think I have a few ideas for how they could achieve that. The AI Daily Brief is a daily podcast and video about the most important news and discussions in AI. Alright, friends, quick announcements before we dive in. First of all, thank you to today's sponsors, KPMG, ZenCoder, and Super Intelligent. To get an ad-free version of the show, go to patreon.com/AIDailyBreath, or you can subscribe on our podcasts to learn about sponsoring the show, or really anything else related to the show, go to AIDailyBreath.ai, if there you can find links to sponsorship, to information about speaking engagements, or the wide variety of projects that we have going on in any given time, such as our AI New Year's Resolution, or the upcoming AI DB Intel. Now, let's talk about advertising in ChatcheeBee T. On Friday afternoon, the official open AI account tweeted, "In the coming weeks, we plan to start testing ads in ChatcheeBee T free and go tiers. We're sharing our principles early on how we'll approach ads, guided by putting user trust and transparency first as we work to make AI accessible to everyone. What matters most? Responses in ChatcheeBee T will not be influenced by ads. Ads are always separate and clearly labeled. Your conversations are private from advertisers, plus pro-business and enterprise tiers will not have ads. They also show an example of someone asking about simple but authentic Mexican ideas for their dinner party, which led to a hot sauce, which led to a harvest groceries ad focused on hot sauce." Now, in their announcement post, they really focus on the fact that advertising is their way to make sure that access to hyper-intelligent AI assistance remains available to everyone. They write, "AI is reaching a point where everyone can have a personal super-assistant that helps them learn and do almost anything, who gets access to that level of intelligence will shape whether AI expands opportunity or reinforces the same divides." So then they say, "In the long run, ads are what's going to make open AI able to continue to provide lots and lots of otherwise free users with high quality service." They expand a little bit what they say about their ads' principles from the tweet. Some of them are repeated like answer independence and conversational privacy, but they also articulate a principle of mission alignment. Our mission they write is to ensure AGI benefits all of humanity. Our pursuit of advertising is always in support of that mission and making AI more accessible. And alongside that, another principle they articulate is long-term value. We do not optimize for time spent in chat GPT. We prioritize user trust and user experience over revenue. They also hint that despite their examples being extremely simple display ads taking advantage of the high intent of chat GPT users, maybe they'll think about more creative strategies in the future. They write, "Given what AI can do, we're excited to develop new experiences over time that people find more helpful and relevant than any other ads." Social interfaces create possibilities for people to go beyond static messages and links. For example, they say, "Soon you might see an ad and be able to directly ask the questions you need to make a purchase decision." They also note, "Ads can also be transformative for small businesses and emerging brands trying to compete. AI tools level the playing field even further, allowing anyone to create high quality experiences that help people discover options they might have never found otherwise." So, basically overall they're saying, "User trust is paramount. We're not trying to turn into the next meta that absorbs all your time. Hopefully we can get creative with new types of ad units, but ultimately this is necessary to provide everyone equal access to high quality artificial intelligence." In his reshare of the OpenAI post, Sam Altman chose to focus on reinforcing the message that chat GPT ads will not influence the answers that chat GPT gives you, as well as data privacy, i.e. that advertisers don't get conversational data. CEO of Applications Fiji Seemo also focused on that. Most importantly, she writes in her tweet, "Ads will not influence the answers chat GPT gives you." So, let's talk about responses. For some, this was an inevitable and perhaps necessary evil. Anonymous poster signal actually responded to Sam's posts calling it a necessary evil and then went into a little bit more detail in their own post. They write, "Let's talk about ads because ads inside chat GPT will be insane. Meta made about $58 per user in 2025 purely for ads. Now Imagine OpenAI hits a billion free users. If they monetize at just 9% of Meta's Arpooh, that's 5 billion in incremental revenue. 18% gets you 10 billion. Political parity is 57 billion a year from ads alone. Can AI companies ever match or exceed social media Arpooh? Likely, AI sits closer to intent than feeds ever did. Ads in a feed monetize attention. Ads in an AI-convote monetize decisions. It'll take time, but if AI becomes the default interface for thinking, searching, buying and choosing, social media Arpooh manned up looking like a floor, not a ceiling. Given that they have many, many Facebook veterans, it looks very likely that OpenAI has the potential to build one of the greatest ad businesses of all time. OpenAI is essentially building Facebook 2.0, and all of the old Facebook peeps are doing it. 10 May writes, "My thoughts on OpenAI ads. I think it will be a game changer and online advertising. Chat GPT is affiliate marketing on steroids. It grows to know you personally and given context will tell you exactly what to buy and if you buy, OpenAI gets a cut. Shared memory across chats will only bolster this. The level of personalization will be unmatched and unlike anything seen in online advertising before. When this rolls out to all users, OpenAI revenue will go ballistic." Now one note, showing that these folks might have the right of it. In early studies, it seems very clear and consistent that Chat GPT users have much higher intent compared to Google searchers. One study for example found that Chat GPT traffic converted at 16% as opposed to Google Organics 1.76%, a 9x difference in the conversion rate. I've seen many, many other studies and while that one is on the high end, they all show Chat GPT being higher intent by a meaningful factor than traditional Google search. This makes sense intuitively if you're asking questions about something in Chat GPT, you're probably doing a more conscientious form of research than just idling, googling something. The problem of course is that the communication around this has not been good. Metasjason Yim wrote, "In May 2024, Sam Altman said ads plus AI is uniquely unsettling to me and called advertising a last resort. Today, Chat GPT is getting ads. OpenAI is burning through cash and insane rate, so now the company that positioned itself as the ethical AI alternative to Big Tech is building an ad platform to monetize it 700 million weekly users. And Sam Altman's new take, "I love Instagram ads. You can't make this up." Nate Hake writes, "So we are all in agreement now that the whole AGI and AI abundance narratives were total scams, right?" Benjamin DeCracco wrote, "Remember just last month, OpenAI implied that people were lying about seeing test ads in Chat GPT, and that ads were just silly rumors. They were 100% working on ads at the time." Now, interestingly, Ben Thompson from StrategicAry argues that OpenAI should have already put ads in GPT. In a recent interview on TBBN, he said, "They could have launched the world's crappiest ads in 2023. By today in 2026, the ads would be good. They'd be making money and people wouldn't rebel against it. Now they're going to have to launch ads and they're going to suck, and people are going to be like, "This sucks, I'll just go to Gemini." Now this reflects something that I said back when they launched the Sora app. To anyone launching the numbers, it has been completely inevitable that at some point Chat GPT was going to have to be an ad-supported model. It's only something like 5% of users that are converting to paid, and you just can't have 95% of users who are using Chat GPT as much as they are, and not have an ad-based model. It was just completely inevitable, and anyone who has been around any business for any amount of time has known that it is inevitable. Which made it so absolutely patronizing when they pretended that they weren't going to do ads. Remember, all of the hub up around the Sora app was people being frustrated that OpenAI was just turning into another attention hog. The communication around advertising at the time was still, "Oh, no decisions have been made, yada yada yada." So either one, the decision had been made, and they were lying, or at least not communicating truthfully, or B, they were in some sort of state of naive denial, that in the last couple of months, they finally got themselves out of. Neither case is particularly reassuring, and you can already see the challenge to trust. Certainly the thing that people are most concerned about is the way that it impacts the quality of results. Samo Crabberts captures the sentiment of about a million different tweets when he says, "How can we trust this? Ads will not influence the answer Chat GPT gives you. Ads results in an inevitable conflict of interest. Just look at how Google Boil the Frog over time." Jason Yum's post goes farther in describing this phenomenon, referring to the new mockups that Chat GPT shared, he says, "The current mockups show Google shopping style ads sitting at the bottom of the screen, clearly separated and not integrated into the actual response. OpenAI is being careful testing the waters, but here's what history tells us. Google search ads started the same way. Now, they're nearly indistinguishable, just a tiny sponsored label. The playbook is always the same. Introduce ads as separate and non-intrusive, wait for users to get used to them, slowly integrate ads deeper into the core experience. Give it 18 months and Chat GPT will be recommending products made conversation. Based on what you've told me, you might like this, with a tiny sponsored tag you'll barely notice. Now, I have a different thought on that as you'll see in a minute, but that is the concern that people have. Other concerns that people have is that even as we're trying to get better memory, this increases the cost of our service's having memory." Jen Xu writes, "OpenAI launching ads within Chat GPT is the exact reason why I don't want my AI tools knowing about me or remembering my preferences. Yes, ads are annoying, but integrated in Chat GPT, the depth of manipulation can mess you up without noticing." Augustine LeBron thinks that this could threaten recruiting, leaves Euro-san quant finance and come build the machine God. They're going to have a rude awakening when it turns out they have to work on ads, ads, and more ads to pay for it all. To the extent that there are positives, it's around either A) the idea that advertiser pressure could keep Chat GPT within normative boundaries, business insider correspondent Katie Natopoulos writes, "Here's the upside to ads on Chat GPT. Yes, ads are annoying, but being subjected to advertiser pressure has a normalizing effect. A tech company has to maintain a bare minimum morality or advertiser's flee. But still, overall, most of the responses are somewhere between cynical, skeptical, or outright mad." Alright, let's talk about the signal versus the noise in Enterprise AI. The challenge right now isn't just about what's possible, it's about what's practical. That's the entire focus of the UCan with AI podcast I host for KPMG. Season one, cut through the hype to focus on deployment and responsible scaling. Season two goes a level deeper. 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It's going to allow you to do a lot of the things that we do at Super Intelligent, but in a much more automated, self-managed way, and with a totally different cost structure. If you are interested in checking it out, go to aidelebrief.ai/compass, fill out the form and we will be in touch soon. So is there a way to make this better? Or is this just a signal put it a necessary evil? I think ultimately that even without a lot of creativity in the formats, part of the cost benefit analysis of free services on the internet is the truth in the old maxim that if you are not paying, you're the product. Advertising is simply put the way that services are offered for free. But obviously, open AI should aspire to more. If for no other reason, then Google is one of the most powerful advertising jargonauts in the history of the world. And so open AI really needs to get creative to have some sort of differentiation. So let's turn now away from what has been announced to how I would try to make Chatchy BT ads not suck if I were in charge. With the help of Jen Spark, I put together this strategic presentation, open AI team if you're listening, feel free to use this without attribution. Let's just work to make these inevitable ads strive to not only be not painful, but to actually be interesting and good. Now the opportunity and the challenge is obviously that the other juggernaut in the space when it comes to consumer AI has a 20 year head start on internet advertising. But of course, the intense signal that exists in Chatchy BT is its own opportunity. And let's be real, there is simply put not an option to not do advertising. Even with incredible growth in the annualized revenue, all the way up to 20 billion as per the latest announcements from open AI, the company is still burning a huge amount of cash and paid users seem at this point unlikely to be able to cover the gap. We've already discussed the intended vantage, but this really is what makes the potential for advertising in Chatchy BT so interesting. Now I don't want to be cynical about open AI stated principles. I think that those principles are foundational and need to be there. But I think we have to go farther than just stating the principles. I think users need an actual control foundation that gives them granular, legible control that actually empowers them relative to other platforms. Basically users need to be able to see what the system believes about their preferences and correct it. They need to be able to interact with ads as partners not targets. When the ad say you seem interested to Japan and serve up some travel tips, the user needs to be able to say I already went. In other words, they need to be able to correct the system. They need to be able to have control of timing and deferrals. I'm interested in this category, but not right now. I'm researching, but not buying, check back in three weeks. The point is to provide easy ways to give users the ability to provide signal that makes the next ad better. Users of course don't have to take advantage of that control, but it is there for them if they wish to. But let's take it farther. In addition to just giving them more control, we need a bad ad insurance policy. We need a flag and skip mechanism. And if you see something that is insensitive or mistimed, you need to flag it and get a day of ad free. Typically, chat GPT needs to put its money where it's mouth is when it comes to better ads. I also think in addition to getting ad free days, the company might want to think about transparent advertiser ratings. Give users the ability to rate ads directly, create a consequence with the cost of quality, make it so that low ratings pay more per impression, and that higher ratings get preferential access than lower costs. And make this all public. Create an advertiser quality rating, show a block rate, show a user satisfaction rate. Again, many people aren't going to take advantage of this, but my guess is that there's a positive correlation between the people who are most concerned about ads disrupting the experience in those who would. So with that as our foundations, let's talk about innovating on the ad units themselves. I think that OpenAI is so concerned right now with not being disruptive that they could very easily miss out on the opportunity to be much more innovative and potentially high value with the ad units themselves. So here are five different categories of ideas for slightly different approaches to the actual ads. Everyone is, of course, transactional advertising, and this is where OpenAI is even starting right now. However, there might be some ways to better align the incentives. Right now advertising is sold on the basis of potential, cost per view or cost per click. That is the pay for attention model. The obvious thing to experiment is to shift that model to pay for results instead, to have verified outcomes where the advertiser pays only when the transaction completes and users confirm satisfaction, think $50 for a booking instead of $2 for a click. Now for those of you who are in advertising out there rolling your eyes because this would seriously diminish the number of advertisers who were able to successfully get value from this because a lot of the products are crappy. That's kind of the point. This would prioritize advertisers who had something valuable to offer where there actually was going to be a verified outcome as opposed to just people who are buying inventory at scale. What's more, we can take advantage of the fact that users of ChatGBT are high intent to actually allow them to shift into a different mode, which makes them more open to everything around commerce. Think a user initiated commercial mode, a help me buy button. The old paradigm is interruption, the new paradigm is this as a feature, think buying agents that actively work for the user, negotiating and filtering options with a clear context switch. Here's an example of what some of that transactional advertising might look like. Here a user has asked help me book a flight to Tokyo with a $1,200 budget. ChatGBT responds here are two ways I can help, either help me book which shows options with a book now button or an ability to just see options without the advertising integrated. You can also see here that the airlines in question only pay if you complete the booking. Here's another example of being able to switch between just comparing options or actually having assistance signing up with those disclosures around when and how the advertiser pays. Next up, let's talk about offers. Offers are going to be when an advertiser doesn't just serve you up a display add, but provide some sort of discount or incentive to go take an action now. Help maybe we create an offers exchange where in addition to getting served contextual offers in situ as part of conversations, there's also a place where you can go browse the current offers that are available. And for those of you who think they're crazy, there are entire categories of websites that make hundreds of millions of not billions of dollars a year, basically doing things like this, giving people the ability to browse current offers, top-timize the timing of their shopping. So I think that this is two parts. The first is offers that are actually useful, taking advantage of the context and intent that they have, think triggered memory. You said you'd wait for a sale on running shoes, but Nike is 30% off today. Think negotiation, I can get you 25% off if you buy through this partner right now. There could be verified scarcity 47 remaining at this price, basically giving chat to BT access to real inventory data. There's also price context, this TV is 20% off, but was 25% off last month. Here's the history. Now, although some of the laments in the wake of the announcement was that people didn't want to see ads in line, if you provide more contextual information that has some of these principles, I think that people could get down with this. Someone asks, I want to get back into running, what should I know about building up distance safely? It gives the set of tips. And then in a very distinguished ad unit, it says, by the way, six weeks ago, you mentioned waiting for a sale on Nike Pegasus 41s, Nike is running 30% off through Sunday. This shows that it's the best price in six months, and gives the user a set of contextual options, including view the deal, reminding them later, or indicating that they are not interested. It also has the ability to immediately adjust your preferences around how you get served these types of offers. But in addition to just showing off in line, the offers exchange could be a place that you actually go to track this. Now, again, some of you are cringing right now because you're thinking Facebook Marketplace, but Facebook Marketplace has become an extremely useful feature for a huge number of users there. And I don't think it's impossible that something similar could happen inside ChatGbT. Number three, let's move on to brand advertising, where instead of funding offers or just transactional ads, brands fund capabilities. These are not just performance dollars, these are brand dollars that are going into this. And in this case, brands could more explicitly fund opportunities that are more limited for free users compared to their paid counterparts. This could be things like McKinsey, providing broader access to deep research queries, even after a free user has hit their limit. Where in this case, you're not being served, a click-through offer for McKinsey. But instead, a version of the deep research experience that is presented by McKinsey and branded as such. Think training mode presented by Nike, where your experience around a particular set of athletic goals, triggers a branded experience within ChatGbT that again is presented by Nike. There's so many interesting things you could do with these premium brand formats. You could even have brands fund features that wouldn't exist otherwise. There is lots and lots of opportunity to create premium branded experiences where users aren't just being served transactional ads. Let's take it a step further though and create branded action agents, where the ad itself is a product not a placement. Now OpenAI is already starting to walk down this path with their apps, but this would be the next obvious level, where brands build constrained mini apps inside ChatGbT. Users explicitly opt into that branded environment, use it for a discrete purpose and exit when done. The UI could expand to encompass the brand. Some of the obvious examples that come to mind are the American Express Travel Concierge or the TurboTax Tax Purpose System. Now admittedly, ChatGbT is already walking down this path, and I think it's an extremely promising area because of all the different ideas for ad units. This is one where they're likely to be able to prove value to users by actually doing something useful for them in context right away. And so I think it would be who've them to put a ton of energy into this particular area. Lastly, what if we try to actually create ads that people root for? In their announcement post, OpenAI talked about how ads can be a level playing field for small businesses and new companies, but let's create a grants program that is explicitly for that. Founders' grants, ad credits for businesses built with AI tools, give one person unicorns that distribution levels they lack. Small business grants, ads that actually help small businesses reach broader audiences, create a Kickstarter type of energy, and once again, don't just run ads silently, but also show the recipients let users browse. So here we have an example of interviewcoach.ai, where the ad unit itself shows you that it's part of the AI Founders Grant program. And when you click on that, you can go browse other recipients from categories like AI built startups, local small businesses, or creator businesses. There are, of course, still people who are going to be cynical and just never care about advertising. But in this world of AI, there are going to be so many new types of businesses that are built that I think that there is lots of opportunity to tell the story of this next generation of businesses through the medium of advertising as well. Ultimately, are most people going to care about any of this? The answer is no. Ads are, to some extent, just an inevitability and a necessary evil. But if I'm open AI, even if I know that to be the case, I would not simply be content to just make ads as unobtrusive and clearly labeled as possible. I would set the goal, an ambitious goal to be sure, of making ads that are actually value additive. Maybe you don't hit the mark, but I think there's value in the attempt. Anyways, guys, that is going to do it for today's holiday episode. Tomorrow, we will be back with our normal format. For now, appreciate you listening or watching, as always, and until next time, peace. [MUSIC]