Zero Clicks #40: AEO Grows Up

Welcome back to Zero Clicks where we explore the interplay of AI, media and commerce…and increasingly, wonder where precedented times went. Thanks as always for reading. 

Here’s your TL;DR for what lies ahead this week:

• The big picture: AEO reaches adolescence

• Job posts: OpenAI begins staffing up its ads business

• One great read: The boiling frog of financial degeneracy  

• Best thing on the internet: American Gravy

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AEO Grows Up

Two weeks ago, Profound, the poster child for the booming industrial complex known as answer engine optimization (AEO), raised $96M at a $1B valuation. In the grand scheme of the AI era, that seems like a pedestrian enough sentence. That is, until you remember that Profound– a company that did not exist 18 months ago– primarily provides analytics for how brands show up in a platform that was only unveiled to the world at the end of 2022. While it seems like ancient history now, ChatGPT didn’t even launch a dedicated search product until Halloween of 2024.  

Few applications built on top of LLMs are currently attracting as much unbridled horniness from VCs as AEO platforms. At the same time, perhaps no category of technology is garnering as much vitriol from old guard operators who range from mystified to outraged at investors tripping over themselves to fund the shiny new thing. For context, SimilarWeb– long the go-to source of truth for third party web data who also boasts an AEO offering- trades at one-quarter of Profound’s valuation on the public markets.

Viewed myopically, it is utter madness that an AEO company could fetch a billion dollar valuation. The business is the ultimate commodity, a boondoggle of near identical dark mode dashboards pulling from the same underlying data sources. The current moat is brand, momentum and vibes. It’s profoundly bubbleicious!

Furthermore, while the last generation of SEO software was largely bootstrapped and capital efficient, AEO companies have to raise significant amounts of venture capital because the cost of compute increases as they scale. Said another way, as AEO platforms grow, a sizable chunk of their new revenues end up in OpenAI’s pocket. What in the name of all that is holy are we even doing here?

Per usual, we’re talking around each other as most industry observers are fundamentally asking the wrong question. Is helping marketers understand how LLMs simply reference your brand across the longtail of semantic searches a multibillion dollar business? No, it is not. But is providing directional insights into how AI perceives a given company a major wedge into helping marketers navigate the existential uncertainty that ChatGPT has thrust upon their business? You better believe it is.

If you’re doubting whether AEO can be a massive asset class, I’d ask yourself these questions. Will the nature of the marketing profession radically change in the next five years? Will marketers need to decipher how to run and attribute ads in LLMs? Will design, copywriting, media buying and other core functions increasingly be handled by agents?

If you answered yes to any of the above questions, it stands to reason that there are multibillion dollar technology businesses waiting to be built that solve those problems. This is why the deluge of cash is flowing into the AEO vendors. They are the closest to the action.

As AEO companies mature, we can see the chessboard of how they intend to differentiate taking shape. Evertune, another well funded AEO platform, recently announced partnerships with Index Exchange and The Trade Desk to power retargeting on publishers that influence AI responses. Expert this to be the first of many AEO vendors angling to position themselves as both attribution and buying layers for the coming AI ads boom. 

OpenAI has already signaled that it intends to build its ad business at a frenetic pace and will lean heavily on partnerships to do so, at least to power the initial demand and recommendation engines at scale while the walls of the garden get built. 

Ultimately, OpenAI will have to solve probabilistic attribution and find a way to grade its own homework in a manner that accentuates the fuzzy influence that ChatGPT has on purchases. But that may well take years to master and even when it happens, there will be demand for neutral third parties to act as both referees and air traffic control for AI ads. 

The stakes of getting this right are gargantuan. Whether OpenAI can cure cancer, act as master or war or otherwise further shape humanity in its own image may well come down to how fast they can build a direct response attribution model for ads. Capitalism is eternally one hell of a drug.

In addition to ads, the other major bet AEO platforms are making is around the notion of “agentic marketing”, both preparing for a world in which agents are end customers and enabling workflows for agents to be a natural extension of marketing teams. This creates a fascinating dynamic where many of the buzziest AI companies at the application layer who today safely operate in independent lanes may run up against each other. Today, Clay, Profound and Decagon are unicorns that sell into different buyers. In two years, I bet they’ll be seeing a lot of each other.

Broadly, for marketing leaders, there’s an interesting tension right now around how to prioritize anything with the word “agentic” in it. Any notion of agentic optimization is effectively a call option on the future. Boosting the margin of one Meta ad campaign probably matters more than the totality of the time you spend thinking about indexing for ChatGPT in this quarter’s results. But this may well be the last quarter that is true.

More importantly, everyone from the intern to the CEO is thinking about how to future proof their career. And as a sheer matter of self preservation, CMOs who never touched software are getting their hands dirty in AEO platforms. That alone is worth a hefty price tag.

Senior Manager, Ads Revenue, OpenAI

While OpenAI still isn’t publicly listing any sales roles around its ads products, finance and accounting openings for the ads P & L have appeared, indicating that the company does expect meaningful revenue. There’s only so much longer that the ads headcount can be filled behind closed doors….I’d expect a wave of openings to hit the public job boards some time next quarter.

Regional Head of Early Career Associates, Applied AI, Anthropic
It warms my heart to see a leading foundation model embrace the early in career rotational program, a one time staple of corporate America that has largely died in the name of short-term shareholder value. It’s hard to overstate how life changing starting your career in something like this can be, especially for a kid without a ton of connections. 

I spent two years in LinkedIn’s early career rotational program often day drinking, playing 2PM Golden Tee and occasionally slinging software. Along the way, I made lifelong friends who now work at many of the best companies in the Valley. I think I paid the firm back in vibes?

AI eviscerating the entry level job is a policy choice.

Product Marketing, Clay
Speaking of taking care of employees, few companies are redefining the rules of startup equity like Clay, which has already offered liquidity to early staffers at both a $1.5B and $5B valuation. I remind you all that even after the grand SaaS sell off, Salesforce is worth $180B.

There’s plenty of room to run here.

Robinhood and How to Lose Money, Margins
 
I thought about Ranjan Roy’s excellent 2020 piece as several well-adjusted members of society had a meltdown on X over Kalshi’s decision not to pay out on wagers regarding Ayatollah Khamenei being “out of office” by March 1. Kalshi’s ham-fisted argument was effectively that in a civilized world, we don’t directly profit off death futures. On the one hand, the angry bettors are right. Kalshi, this is the business you’ve chosen. War is just another mark. Put the fries in the bag. On the other hand, when did we start to stray this far from God?

More and more, it feels like the slow march from investing to degenerate gambling started when trading became a zero-fee endeavor. Maybe the $5 your ancestors paid Fidelity back in the stone ages wasn’t such a bad thing after all.

Stop buying jarred tomato sauce, American Gravy

If I was forced to cancel every newsletter subscription except one, Chef Andrew Gruel would be the lone scribe to make the cut. Gruel’s recipes are essentially the anti New York Times cooking, eschewing weird infatuations with pomegranate molasses and porcini mushroom powder to focus on simple, ubiquitous techniques and ingredients.

His tomato sauce is the consummate example– five ingredients, ready in 15 minutes, for less than $5. Who ever knew you could want more than that out of life?