Search engine Perplexity has been one of the hottest startups in the AI sector this year, raising new funding at higher valuations three times so far in 2024:
In January 2024, the company raised $74.6 million at a $520 million valuation
In April, it raised $63 million at a $1 billion valuation
In June, it raised $250 million at a $3 billion valuation
Earlier this week, The Wall Street Journal reported that Perplexity was now looking to raise $500 million at an $8 billion valuation. A potential 15.4x valuation increase in ten months is a meteoric rise, but venture investors in 2024 have shown that they’ll pay a premium to invest in AI startups, and Perplexity’s growth this year has been impressive.
49% of all venture capital dollars in Q2 2024 went to AI and machine learning startups, and the median pre-money valuation for late-stage AI startups is now more than 65% higher than their median fintech and SaaS peers. Meanwhile, Perplexity’s annualized revenue, calculated by extrapolating last month’s revenue over the next 12 months, has increased from a little over $10 million in March 2024 to $50 million now, just seven months later.
Perplexity, which is seeking to disrupt Google’s search market dominance, is processing around 15 million queries per day, and it generates revenue from premium subscriptions to its search services. However, earlier this month, Perplexity said that it plans to start including advertisements, allowing brands to sponsor follow-up questions to user queries.
While investors have been impressed by Perplexity’s growth, one group of companies has taken issue with the search engine’s business practices: media companies.
On October 21, News Corp, the parent company of The Wall Street Journal and the New York Post, sued Perplexity for infringing copyrighted content. To quote the lawsuit:
“[Perplexity’s] AI ‘answer engine’ copies on a massive scale, among other things, copyrighted news content, analysis, and opinion as inputs into its internal database. It then uses that copyrighted content to generate responses to users’ queries that are intended to and do act as a substitute for news and other information websites. Perplexity loudly touts that its answers to user queries are so reliable that its users can ‘Skip the Links’ to the original publishers and instead rely wholly on Perplexity for their news and analysis needs. What Perplexity does not tout is that its core business model involves engaging in massive freeriding on Plaintiffs’ protected content to compete against Plaintiffs for the engagement of the same news-consuming audience, and in turn to deprive Plaintiffs of critical revenue sources.”
This lawsuit comes after The New York Times sent Perplexity a cease and desist, Forbes accused the company of stealing its reporting, and Wired accused it of illicitly scraping its site.
The legal implications of AI tools summarizing articles are murky. Perplexity’s head of business, Dmitry Shevelenko, compared Perplexity’s summaries to journalists incorporating information from other sources to support their own reporting, and summaries, by themselves, aren’t necessarily illegal. According to US copyright law, “it is permissible to use limited portions of a work including quotes, for purposes such as commentary, criticism, news reporting, and scholarly reports.” However, AI tools like Perplexity can generate these summaries much faster than reporters incorporating outside information into their stories.
While OpenAI has signed licensing deals with at least seven prominent media companies, helping it navigate the complicated relationship between generative AI and publishers, Perplexity has not yet announced similar deals.
This is a situation where technology has outpaced current regulatory frameworks, and the outcome of News Corp’s lawsuit will likely play a large role in shaping the future relationship between media and generative AI companies. Read our full memo for more.
