Monetizing GenAI

Why most consumer companies are missing out on revenue

While we've made incredible strides in AI technology and its applications, we've lagged behind in business model innovation. We have this powerful new media format, yet we need to find monetization methods that truly align with it. Instead, most companies default to the traditional subscription model—which leaves significant value untapped. Take OpenAI, for example: only about 5% of users pay for a subscription. What about the other 95%? They generate no revenue at all.

AI apps need to monetize, and subscriptions are not the only way to do that. It’s important to maximize revenue potential from day one, and that means investing in multiple revenue streams to sustain long-term growth. We can see investment in multiple revenue channels throughout history, as newspapers, radio, TV, and the web all started with premium subscriptions as the primary business model. Today, each of those formats generates significant revenue for advertising and affiliate practices. Even Netflix, which famously said they would never sell ads, now has 50% of new signups coming from their recently launched ad-supported tier.

Monetizing the 95%

Companies are missing a huge opportunity to monetize the 95% of unconverted users. This is primarily because current monetization methods for AI applications significantly detract from the user experience. Traditional banner ads and display formats create visual clutter and distract users from their core experience, ultimately driving them away. Traditional ads simply aren’t relevant to the session, because they’re based only on user attribute data and search history, which is significantly less rich than the context that AI apps gather over a series of chats with the user. Search and text ads pose their own challenge—while it’s technical possible to integrate them natively in AI outputs, there is no product today that serves AI specifically to allow a native format.

Where is the AI native model?

AI applications are forced to rely on subscription or usage-based pricing because there is a lack of relevant alternative formats. In this model, revenue must come directly from users rather than advertisers. Shouldn't AI have its own native monetization format that seamlessly integrates commercial links and advertisements without compromising the user experience?

Applications should consider what kind of media entity they are (because most consumer AI apps behave like media entities), and monetize accordingly. Some products are more aptly positioned for ads. Visual, creator-led content platforms like YouTube and search platforms like Perplexity have high potential.

So how do AI apps monetize most effectively?

First, its worth considering the type of content being shown to users. If it’s lower funnel, search-related content, ads are a powerful format. This is true for user generated content platforms as well, but less true for creative tools and writing assistants, where usage based pricing can be best. For more professional productivity related tools, subscription is a strong monetization path.

Similarly, if your app gathers data on the user that can be used to make implicit recommendations for ad content, then advertising is also a very strong candidate. An example of this might be a companion app, or a character-like experience. User attributes can be generated over time given the rich context of the chats, and advertising technology systems can infer the right content to show a user based on those attributes.

The ecosystem is relatively set up for usage and subscription-based pricing, but not for commerce related monetization models like ads and affiliate links. If the app is a good candidate for that path, it’s worth experimenting with several formats such as:

• Text response ads — prefix, suffix, and infix
• Contextual carousel ads
• Affiliate links
• Brand-owned amazon storefronts or drop shipping stores
• Sponsored follow ups or idea questions

We’re working with several AI brands to develop unique formats that perform the best given their native content. Below is one example of an inline, contextually relevant and personalized ad for one of our publisher partners.

Reach out to us

If you’re looking to experiment with monetization methods in your AI app, reach out to us at Koah. We’ve helped many AI apps significantly increase revenue & monetize in a format that works best for their users. Feel free to email me at nic@koahlabs.com & I’d be happy to chat about it!