Google pays nearly USD 18-20 billion a year to be Apple’s default search engine. The agreement is currently under scrutiny through an antitrust lawsuit filed by the US Justice Department. This also highlights Google’s dominance in the search domain, a hegemony that even Microsoft has struggled to challenge.

But with generative AI coming into the picture, it looked like the dynamics could change with a number of startups popping up and offering better generative AI-powered search experiences like You.com, Perplexity AI and Neeva AI. 

Notably, Neeva AI caught everyone’s attention because it was co-founded by a former Google veteran, Sridhar Ramaswamy, who led Google’s USD 115 billion advertising tech division. But despite having a better product than Google, Neeva AI exited the market, and sold to Snowflake. 

However, others in the space, like You and Perplexity, remain optimistic that they can carve out a share of the pie in the search engine space.

End of the ten blue links 

Banking on the strength of Large Language Models (LLMs), both You and Perplexity are currently focussed on providing a better search experience than Google to their users. Much like Neeva, these startups aim to disrupt the paradigm of the ’10 blue links’ that typically appear when querying Google. The goal is to present the answer directly, aided by AI, rather than requiring users to sift through links to locate the relevant information.

This has also resulted in both startups attracting a significant number of users to their applications since their inception. You, for example, which was founded by former Salesforce chief scientist Richard Socher, reported 1 million users in 2022. In September 2023, the company had 13.6 million visits, according to data from Similarweb. 

Similarly, Perplexity had 37.4 million hit during the same period. The numbers may seem relatively minute in terms of the billions of hits Google gets every month, but Aravind Srinivas, who heads Perplexity, recently said that the company has sustained users. 

However, recently Google announced Gemini, which could possibly be the most advanced LLM to date, surpassing OpenAI’s GPT-4. Google introduced generative AI into their search engine earlier but it remained problematic. 

For example, on the day of the ICC Cricket World Cup Final played between India and Australia, we at AIM asked Bard about the match and to our surprise, it declared Australia the winner even before the match was played. In a separate instance, it declared India as the winner.

With Gemini, how much can Google improve the search experience remains to be seen, but the implications could be significant for startups operating in the same space. 

If Google significantly improves its search experience, users of You and Perplexity could possibly migrate back to Google. Alternatively, in such a scenario, the startups could integrate Gemini into their products to improve their current offerings, however, the challenges in front of them are aplenty.

But to compete with Google, you need more than a product 

For instance, to sustain and compete with Google in the search engine space, they need more than a good product. Ramaswamy, in a previous interaction with AIM, said that his company was not on the path to a sustainable valuation, despite having a better product than Google’s.

Moreover, Google’s overwhelming presence stifles competition. “To become the default search engine in Safari, as it turns out, is an incredibly convoluted endeavour. In reality, there is no formal process; it all hinges on Cupertino’s (Apple’s) subjective judgement of one’s qualifications. “There is no process and it’s pretty tough to create a sustainable business,” he said.

As it appears, both Perplexity and You are currently fixated on a better product and don’t have a viable business model. Srinivas, in an interview, said that he does not plan to monetise the same way like Google. 

“We haven’t thought through that part yet, but we at least know that it won’t be the exact same thing,” Srinivas said in an interview. 

While Perplexity is relatively new, founded in 2022, You has been around since 2020. Socher said he is not much intimated by the fact that Neeva exited the market. But he does acknowledge that, from focussing on product development, the company must now shift its focus to revenue generation.

For now, the startups may carve out a niche in the market, but building a sustainable business, especially in the challenging search space, remains a different ball game.

So far, Perplexity has raised over USD 50 million with a valuation of over USD 500 million, generating USD 3 million in annual recurring revenue. You have also raised USD 45 million in three funding rounds and have estimated revenue of around USD 15 million per year. 

Currently, both companies offer a subscription for the premium services. YouPro costs USD 14.99/month or USD 149.99 for a full year which gives users unlimited access to AI models like GPT-4 and Stable Diffusion XL. Whereas, Perplexity premium costs USD 20/ month or USD 200 per year and gives users access to advanced AI models, extra copilot usage, dedicated support, and unlimited file uploads.

However, the startups will soon need to explore more effective monetisation strategies, foster growth, and simultaneously compete with Google.  Neeva, too, had a subscription model starting at USD 4.95/ month.

Ramaswamy said that it was very possible for them at Neeva to raise again in a fresh round and get a few million more to use their products. However, he said a founder’s job was to look ahead around the corner, and unfortunately, Neeva found operating in an uncompetitive space too daunting. 

Nonetheless, despite recognising the David vs. Goliath nature of the situation, both Socher and Srinivas maintain optimism about building a sustainable business.