Here’s what’s on our plate today:

• 📰 Perplexity’s explosive growth, cash-burning problem, and rivals closing in.

• 🗳 Will you pay for Perplexity Pro once the free promos expire?

• 👨‍💻 AI coding challenge, a faster Qi2 25 W, Altman faces Congress on AI jobs.

• 🤖 Try Cursor, Windsurf, and PaperQA, three AI hacks for a smarter weekend.

Let’s dive in. No floaties needed…

The Laboratory

Can Perplexity AI’s user surge translate to real profits?

The artificial intelligence industry is vast and expected to continue growing at a rapid pace in the coming years. Currently, the market for AI is estimated to be around $244 billion, with projected growth taking it to well beyond $800 billion by 2030. As this market evolves, AI companies have all been trying to carve out a nice piece of the market share for themselves.

In the process, regardless of whether a company is working on developing the underlying technology, using LLMs to launch mass market apps, or working on developing productivity tools for enterprises, everyone has to show a profit. However, despite investments focusing heavily on startups,  most LLM companies like OpenAI, Anthropic, and Cohere are yet to see a profit, despite rapid growth.

This model, where companies burn through cash to acquire as many users as possible before even thinking about making a profit, seems to be the core ideology of the AI industry. Google-challenger Perplexity AI also seems to have adopted this model; however, while companies like OpenAI have the time and resources to invest in their future research and development, it might not be that simple for Perplexity.

Perplexity picks on the big competitors

Perplexity AI was founded by a former OpenAI research scientist, Aravind Srinivas, along with  Denis Yarats, Johnny Ho, and Andy Konwinski.

Srinivas left OpenAI days before the launch of ChatGPT in 2022 to launch his own competing chatbot. In December 2022, Perplexity launched its flagship search engine capable of citing sources for its answers, which helps users verify the accuracy of the AI-generated output. Designed primarily for chatbot-based web searches, Perplexity relies on both proprietary and third-party large language models (LLMs) to generate its results.

Since March 2023, the company has had a total funding of $1.02B over 8 rounds. Some of the early investors in the startup include names like Nvidia, Meta’s chief AI scientist Yann LeCun, Jeff Bezos, and SoftBank Vision Fund.

The company had attained a valuation of $9 billion by December 2024, triple what it was in June of the same year.

The company reportedly had 15 million active users by October 2024, reflecting a 50% increase from 10 million active users earlier in the year.  The startup competes directly with tech giants like Google and OpenAI, and has even launched its web browser, Comet, beating OpenAI, which is reported to be working on its browser.

The road to customer acquisition

While Perplexity has grown at a rapid pace, it has come in part due to its partnerships with more than 25 telcos globally, including those recently announced with Airtel in India, SoftBank in Japan, and SK Telecom in South Korea. This has allowed the company to tap into volumes that would otherwise have taken months, if not years to acquire.

In India, which the company sees as a key growth market due to the lack of local AI startups, Perplexity has announced a number of partnerships.

Along with telcos, Perplexity has partnered with the Indian fintech giant Paytm to offer access to its AI-powered search through the Paytm app, which has over 500 million downloads.

This has resulted in solid growth in terms of users in the country, increasing monthly active users (MAU) by 640% year-over-year in Q2 2024, while ChatGPT’s MAUs grew by 350%.

However, despite the rapid growth of users, ChatGPT still maintains its lead in absolute MAUs with 19.8 million MAUs versus 3.7 million for Perplexity.

Another problem that the company faces is that monetizing the large user base remains a challenge, and Perplexity still lags far behind ChatGPT globally in terms of revenue, even as both offer the same $20-per-month starting price. While Perplexity may have acquired more customers in emerging markets like India, it should not be forgotten that consumers are notoriously price-sensitive.

According to a report from Tech Crunch, ChatGPT’s in-app purchase revenue worldwide surged 731% year-over-year to $773 million, while Perplexity saw a 300% increase, reaching $8 million. Perplexity has so far failed to show any substantial revenue growth in countries where it is using free subscriptions to drive user adoption.

Legal battles and competitive pressures

Perplexity throughout its journey has had its fair share of controversy. The company has been sued by the Wall Street Journal and the New York Post, both owned by News Corp, for plagiarizing their content in search results. Meanwhile, its founder has openly said, “We believe that facts need to be universally distributed to everybody." While the lawsuits may be resolved sooner rather than later, earlier this year, the company launched a unique program to share advertising revenue with news publishers.

The company still has to contend with returning a profit for its investors, which may be a lot more difficult than acquiring more customers through partnerships and settling lawsuits.

Perplexity relies on subscriptions for revenue; however, according to The Information, in 2024,  despite generating roughly $34 million in revenue, the company still burned about $65 million in cash. And most of this money was spent on cloud servers and buying access to AI models from OpenAI and Anthropic, both of which are key weaknesses for the startup.

According to Tech Crunch, Perplexity’s business had an ARR of $80 million in January 2025. However, the startup needs to generate significantly more revenue to justify its valuation. And while Perplexity looks to achieve this, competition is not idle.

Google has been pushing AI mode on its AI-powered search product, which is similar to how Perplexity’s app works. Meanwhile, OpenAI has also integrated search more deeply into ChatGPT in recent months, in addition to working on a browser.

The long road to profitability

Perplexity is not alone in its approach. Most AI companies are burning through cash to acquire more customers, while at the same time innovating to stay ahead of the curve.

For Perplexity, the task is especially difficult, as it relies on the very companies it looks to compete with, for the core on which its product is built. Even if the startup can manage to strike a deal with OpenAI, Anthropic, and Google for their underlying LLMs and cloud infrastructure, respectively, it has to deal with lawsuits alleging illegal data scraping, has to convince users to shift away from Chrome, which retains its usefulness and enjoys default status. It must also ensure it can overcome the challenges of proving its reliability. Perplexity ranks among the least reliable in citation accuracy and factual grounding, according to Cornell University.

The startup, then, must navigate financial sustainability, legal hurdles, and intense competition, all while overcoming dependency on rivals for essential technology. Ultimately, Perplexity's success hinges on its ability to translate innovation and market momentum into tangible, long-term profits.

TL;DRTip

• Perplexity’s Growth-at-All-Costs Play: $1 B raised and 25+ telco/Paytm deals push MAUs up 640 % YoY, but revenue is still tiny next to ChatGPT.
  

• Cash Burn & Dependence: 2024 burned $65 M on OpenAI/Anthropic cloud fees despite only ~$34 M revenue; ARR ≈ $80 M is still far from justifying a $9 B valuation.
  

• Legal & Accuracy Headwinds: News-publisher lawsuits allege plagiarism, while Cornell ranks Perplexity among the least reliable for citations.
  

• Crowded Battlefield: Google rolls out “AI Mode,” OpenAI readies its browser—Perplexity must monetize fast or risk getting swallowed by bigger rivals.

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