OpenAI Group PBC today sought to justify its controversial decision to start running ads in ChatGPT several months ago, saying its new advertising business has now crossed the $1 billion annualized revenue run rate mark.

In a blog post, OpenAI said the milestone underlines its success in creating a “diversified business model” that gives people more choice about how to access its products, alongside its consumer subscriptions, enterprise offerings and its application programming interfaces.

The announcement comes at a time when OpenAI is facing increased pressure to justify an $852 billion valuation ahead of what’s expected to be a massive initial public offering that could launch later this year. But the new ad business, which launched around 200 days ago, is still responsible for only a small part of the company’s total revenue.

Last month, it was reported that the company generated $6.7 billion in second quarter sales, up 18% from the first quarter. Those numbers were viewed as disappointing, as just a day earlier OpenAI’s rival Anthropic PBC reported that its own revenue had grown more than 50%, to $11.6 billion, over the same period, also posting a small profit. OpenAI, in contrast, saw its operating loss grow to $12.3 billion.

Still, OpenAI tried to give prospective investors reason to be optimistic that the ad business can help it turn things around. It said it’s aiming to accelerate growth, with a target of $2.5 billion in ad revenue by the end of the year and is tracking toward total annualized revenue exceeding $40 billion.

OpenAI started testing ads within ChatGPT in February with a small number of users in the U.S., and has scaled up the experiment rapidly since then. The decision was controversial at the time, but also not unexpected, given that the company’s challenging finances have been public knowledge for a while. Digital ads have proven to be a goldmine for technology giants like Google LLC, Meta Platforms Inc. and Amazon.com Inc. for years, but OpenAI’s decision to go down that road was criticized by Anthropic, which launched a series of Super Bowl ads ridiculing its rival.

But OpenAI has been undeterred, and in today’s announcement it revealed that it’s now expanding ads in ChatGPT to more than 40 new countries, including India and others across Europe, the Middle East and North Africa. The ads appear for ChatGPT Go subscribers and free-tier users directly within the model’s responses to questions and prompts. Those users make up the vast majority of its 1 billion active weekly users.

The company said it has established ad partnerships with more than 50 brands via agencies such as Omnicom and WPP, and it made an effort to entice even more to consider using ChatGPT for outreach. In its blog post, it related a couple of success stories, saying that one e-commerce brand was able to achieve a three-fold return on its ad spending across multiple campaigns in just 28 days. Another technology partner reported that more than 80% of its ChatGPT traffic came from new customers.

The company reiterated once more that its ads are all clearly labeled and do not have any influence on ChatGPT’s outputs. Advertisers do not have access to user’s private conversations with ChatGPT.

Besides bringing ads to more markets, OpenAI said it’s going to experiment with new ad formats, buying options and measurement capabilities, so that businesses will be able to interact with consumers in more “native ways” within ChatGPT.

Image: OpenAI