How can startups and developers monetize their AI products? A startup called Koah, which recently raised five million dollars in seed funding, is betting that ads will be a big part of the answer.
If you spend any time online, there is a good chance you have seen plenty of ugly, AI-generated ads, but few to none when interacting with AI chatbots themselves. Koah co-founder and CEO Nic Baird argued that will inevitably change. He stated that once these products get outside of San Francisco, advertising is the only way to make them profitable on a global scale, a pattern that has happened time and time again.
To be clear, Koah is not trying to introduce advertising to ChatGPT. Instead, it is focused on the long tail of apps built on top of the big models, including apps with a user base outside the United States. Baird suggested that when consumer AI products first became popular, it made sense for them to focus on wealthier, prosumer users and to monetize them through paid subscriptions.
But now, a developer could build an AI app that reaches millions of users in Latin America, and those users are not paying twenty dollars a month. The developer would struggle to bring in subscription revenue while still facing the same high inference costs as everyone else. Baird suggested that by successfully figuring out how to make advertising work in AI chats, Koah could unlock more potential for apps that might otherwise be too expensive to operate at scale without venture capital funding.
Koah is already serving ads in apps like AI assistant Luzia, parenting app Heal, student research tool Liner, and creative platform DeepAI. Its advertisers include UpWork, General Medicine, and Skillshare. These ads are marked as sponsored content and are designed to appear at relevant moments in your chats. For example, if you ask for advice about startup business strategies, the app could show you an ad from UpWork offering to connect you with freelancers.
When Koah talks to publishers, Baird said many of them believe that ads simply do not work in AI chats, while others have found limited success with older adtech companies. But Baird said Koah is four to five times more effective, delivering clickthrough rates of seven and a half percent, with early partners earning ten thousand dollars in their first thirty days on the platform. He added that Koah achieves this while having less of a detrimental effect on user engagement, with the ultimate goal being for its ads to feel so relevant that they actually improve engagement.
Koah’s seed round was led by Forerunner, with participation from South Park Commons and AppLovin co-founder Andrew Karam. Forerunner partner Nicole Johnson echoed many of Baird’s points, stating that monetization is the elephant in the room amongst builders and investors in AI. While the standard is subscription, focusing exclusively on that can lead to fatigue and churn. She believes multiple revenue models are inevitable, and ads will play a major role, with Koah building the essential monetization layer for consumer AI services.
As for where AI chats fit into the advertising ecosystem, Baird and his team found they represent the middle of the purchase funnel. This is somewhere between the awareness raising of an Instagram ad and the actual purchase driven by a Google search ad. People are not transacting directly within AI chats; they use them for recommendations or product details but then go to another platform to buy. So part of the challenge for Koah is figuring out the best ways to capture a user’s commercial intent. Baird said it is not interesting to him to try to figure out how to show a display ad in AI, but rather to understand what the user is looking for and how to give that to them.