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Perplexity AI's Rapid Ascent: Investment, Growth, and Controversies in the AI Search Engine Market

GOOVER DAILY REPORT July 18, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Investment and Valuation
  3. Growth Metrics and User Base
  4. Product Development and Features
  5. Strategic Partnerships and Collaborations
  6. Controversies and Ethical Challenges
  7. Conclusion

1. Summary

  • The report titled 'Perplexity AI's Rapid Ascent: Investment, Growth, and Controversies in the AI Search Engine Market' provides an in-depth look at the swift rise of Perplexity AI, an AI-powered search engine. Key topics include significant funding rounds like the Series B, which raised $73.6 million and valued the company at $520 million, demonstrating strong investor confidence from entities such as IVP and NVIDIA. It also covers Perplexity AI's growth metrics, including reaching 10 million monthly active users and substantial increases in search volume and website visits. Product developments such as the AI assistant Copilot, enhanced Pro Search features, and new coding capabilities are highlighted. Strategic partnerships with AWS and Workday bolstered the company’s technological capabilities and market position. However, the report also addresses controversies surrounding practices like user-agent masking and unauthorized content scraping, indicating ongoing ethical and operational challenges for Perplexity AI.

2. Investment and Valuation

  • 2-1. Series B Funding Round

  • Perplexity AI successfully completed its Series B funding round on January 4, raising $73.6 million. This round was led by Institutional Venture Partners (IVP), with participation from existing investors including New Enterprise Associates (NEA), Elad Gil, Nat Friedman, and Databricks. New investors such as NVIDIA and Jeff Bezos through the Bezos Expeditions Fund also joined the round. This fundraising effort brought the total funds raised by Perplexity AI to $100 million.

  • 2-2. Valuation and Investor Confidence

  • The Series B funding round valued Perplexity AI at $520 million, according to TechCrunch's Kyle Wiggers. This valuation highlights strong investor confidence in the company's potential. Notably, the valuation reflects the company’s swift ascent in a competitive market, particularly in the AI-powered search engine sector. Analysts have drawn attention to the company's impressive leadership, including CEO Aravind Srinivas, who has experience with renowned tech entities such as DeepMind, Google, and OpenAI, and CTO Denis Yarats, who has worked with Facebook and Microsoft. Perplexity AI's user-centric approach and innovative offerings have driven this positive investor sentiment.

  • 2-3. Key Investors

  • Key investors in Perplexity AI include Institutional Venture Partners (IVP), New Enterprise Associates (NEA), NVIDIA, Jeff Bezos through Bezos Expeditions Fund, Elad Gil, Nat Friedman, and Databricks. These investors bring a diverse range of expertise and resources to the company. IVP's involvement is particularly notable, given their history of backing successful companies like Coinbase and Robinhood. The participation of high-profile individuals like Jeff Bezos and established entities like NVIDIA further reinforces the robust confidence in Perplexity AI's future growth and impact in the industry.

3. Growth Metrics and User Base

  • 3-1. Monthly Active Users

  • As of January 2024, Perplexity AI has achieved a substantial increase in its user base, reaching a total of 10 million monthly active users. This impressive figure demonstrates the search engine's growing popularity and effectiveness in meeting the search needs of users.

  • 3-2. Search Volume and Website Visits

  • Perplexity AI has experienced remarkable growth in its search volume, recording 471,000 searches per month as of December 2023. This growth represents a staggering 20,530% increase in interest over the past year. Additionally, the search engine's website and mobile web versions attracted 45 million visits in December 2023, a significant leap from the 2.2 million visits logged in December 2022 when the service first launched.

  • 3-3. User Engagement and Popularity

  • The rapid ascent of Perplexity AI in the search engine market is underscored by its extraordinary increase in user engagement and overall popularity. The search engine's ability to continuously attract and retain a large number of users highlights its innovative and user-centric approach, which has resonated strongly with the public.

4. Product Development and Features

  • 4-1. AI Assistant Copilot

  • Perplexity has introduced an AI assistant named Copilot. This AI assistant is designed to enhance user interaction by providing search result summaries and outputs that can either be generated by Perplexity's in-house AI models or selected from popular models like OpenAI's ChatGPT, Anthropic's Claude, and Google's Gemini. Copilot exhibits functional similarities to Microsoft's offerings, prompting some interesting observations and a need for further scrutiny.

  • 4-2. Pro Search Features

  • Perplexity has announced significant upgrades to its Pro Search feature. These upgrades introduce multi-step reasoning and math support via Wolfram Alpha, enhancing the search engine's ability to chain together multiple online searches for accurate results. Free users are allowed five Pro Searches every five hours, while a subscription service, priced similarly to other AI services at $20 per month, is available for additional usage. Despite its capabilities, Pro Search remains an optional feature that users must manually enable per conversation. In practice, the Pro Search feature has demonstrated its ability to provide comprehensive answers to complex questions.

  • 4-3. Coding Capabilities

  • Perplexity's recent upgrades include new AI abilities such as code execution. This feature is part of the broader enhancements to the Pro Search function, which also includes multi-step reasoning and integration with Wolfram Alpha for solving complex math problems. Users have found this feature particularly useful for handling complex queries that involve coding and mathematical computations.

5. Strategic Partnerships and Collaborations

  • 5-1. Integration with Rabbit R1

  • Perplexity AI has integrated with the Rabbit R1 personal AI device. This integration provides users with accurate, up-to-date information and fact-checking capabilities, enhancing the overall user experience and effectiveness of search outcomes.

  • 5-2. Partnerships with Amazon and Workday

  • Perplexity AI has established significant partnerships with Amazon and Workday. The collaboration with Amazon involves using AWS’s SageMaker, which has enabled Perplexity AI to train its models 40% faster. Concurrently, Workday has used SageMaker to reduce inference latency by 80%, showcasing the tangible benefits of these partnerships in improving AI application performance.

  • 5-3. Impact on AWS and AI Growth

  • The partnership between Perplexity AI and AWS has had notable effects on AWS's AI growth. AWS has seen a considerable boost with increased customer demand for services like Amazon Bedrock and SageMaker, largely driven by their collaboration with AI companies, including Perplexity AI. This has contributed to AWS maintaining a significant 17.2% growth rate in Q1 2024, indicating the substantial market opportunities created through these strategic alliances.

6. Controversies and Ethical Challenges

  • 6-1. User-Agent Masking Accusations

  • There have been assertions that Perplexity AI is disguising its user agent when making requests to web pages. Critics argue that Perplexity AI should always respect the robots.txt file of any site, even when making summarization requests. They claim Perplexity AI’s behavior deviates from norms since it actively pretends not to be itself when requesting pages. This has raised concerns about the integrity and transparency of Perplexity AI's operations.

  • 6-2. Unauthorized Content Scraping

  • Investigations have revealed that Perplexity AI accessed and scraped content from various websites, including those owned by Condé Nast, despite being blocked from doing so. Wired found that Perplexity’s AI search engine conjured false quotes and attributed them to real people, and plagiarized content from sources like Forbes and Bloomberg through a feature called Perplexity Pages. Amazon is currently reviewing whether Perplexity's practices violate AWS terms of service, reflecting the broader scrutiny faced by the startup.

  • 6-3. Ethical Implications and Industry Response

  • The AI and tech community has voiced significant ethical concerns regarding Perplexity AI's practices. Allegations of unethical behavior, such as unauthorized content scraping and user-agent masking, have prompted responses from various industry stakeholders. For example, Amazon is assessing any potential violations of its terms of service by Perplexity AI, and Forbes has demanded more prominent crediting of its content when used by the AI. These controversies illustrate the ongoing ethical challenges Perplexity AI faces in balancing innovation with industry standards and ethical considerations.

7. Conclusion

  • Perplexity AI's impressive achievements, including rapid user growth, robust financial backing, and strategic alliances, reflect its significant impact on the AI and search engine landscape. However, controversies regarding user-agent masking and unauthorized content scraping pose ethical challenges that need addressing. These issues underscore the importance of maintaining trust and transparency as the company evolves. While the Series B funding and partnerships with AWS and Workday show strong market validation, it's crucial for Perplexity AI to navigate these ethical dilemmas carefully. Future research should examine the long-term viability of Perplexity AI's business model and its influence on the broader tech industry. Additionally, there is potential for practical applications of its AI technologies in sectors beyond traditional search, provided ethical standards are rigorously adhered to. Maintaining user trust and complying with industry norms will be essential for sustaining growth and innovation.

8. Glossary

  • 8-1. Perplexity AI [Company]

  • An AI-powered search engine known for its rapid growth, innovative features, and significant funding from prominent investors like NVIDIA and Jeff Bezos. Perplexity AI focuses on a user-centric search experience but faces challenges related to ethical use of web-scraped content.

  • 8-2. Copilot [Product]

  • An AI assistant developed by Perplexity AI for improved search capabilities. It integrates various AI models to provide accurate and contextualized search results.

  • 8-3. IVP (Institutional Venture Partners) [Company]

  • A lead investor in Perplexity AI's Series B funding round, contributing to a significant capital raise and strong investor confidence in the company's potential.

  • 8-4. AWS (Amazon Web Services) [Company]

  • A strategic partner for Perplexity AI, providing cloud infrastructure and services that support the AI startup's operations and growth initiatives.

  • 8-5. User-Agent Masking [Practice]

  • A controversial tactic allegedly used by Perplexity AI to bypass web-scraping restrictions, leading to ethical and legal scrutiny from the public and industry peers.

9. Source Documents