Dmitry Shevelenko on Perplexity's Vision for Reshaping the Internet

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2:05Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wasenthal. And I'm Tracy Alloway. Today you are going to be listening or watching a special episode of our podcast recorded live at a conference which you've probably never seen before. Yeah, this was at the Lazard Foursquare Conference and we interviewed Dmitry Shevilenko. He is the chief business officer of Perplexity, which is something you might have used before. We certainly use it. Yep. One of the leading AI models. And so this is a conference related to media and dealmaking. And so we talked about what the impact of AI is going to be on news, media, and brands, the internet as we know it.

2:43We also took questions from the audience. So you will hear us referring to questions that we are receiving on the app. We hope you enjoy it. Take a listen. All right. So here's my first question. Should we even be talking to you? What I mean by that is I could just go on perplexity and ask all these questions and it'll give me a pretty decent answer. What's the point? So, first of all, thank you for having me. It's great to be here.

3:11I love that tee up and you guys were scheming backstage of what's going to be the hard opening question but I love it because the thing that humans will always be uniquely exceptional at is asking questions so perplexity may have the answer but perplexity does not have an innate desire to be curious and that's what you guys have and that's why journalism is so important. And that's why having these conversations is important. It's about the questions, not necessarily the answers. Kind of related to this, I guess, but here's the thing that I always think about, which is I enjoy using perplexity, et cetera.

3:54Let's say, you know, you have great relationships with all the news publishers, et cetera, and they're really cool with it all and all those deals get solved, et cetera. Like, why do we need the internet as we know it that has things called websites built for humans. Now that we're in this age where we can go to a chatbot or something like it, and the answer is right there, do we need to have what are traditionally called websites anymore? Why would a publisher continue to invest in design and all of these things when I could just get the answer from perplexity or chat, GPT, or whatever else? So again, it goes back to, I think the reason we're drawn to media properties is because of the questions the journalists and editors are asking, right?

4:38It's not necessarily, it's the framing. It is the, what is actually worth asking about? What's worth reading about? Perplexity doesn't have answers to that. You have to come to perplexity already armed with a question. And oftentimes people read news and there's something they didn't understand fully and they come to perplexity to get that deeper understanding. But the spark, that comes from editorial judgment. That comes from the intuition of a world-class reporter. And that's why we're excited through programs like Comet Plus to find new business models for that. How do you actually judge editorial judgment or quality of news sources?

5:19Because I can imagine a future where a lot of our news consumption is through something like a perplexity model, which means that you're basically the arbiter of what information is reliable. So how do you make those decisions? It's not me at the wheel. Ultimately, this is where we focus a big part of our technology. It's building accurate AI. The thing that we believe is that's going to be most scarce in the future is not intelligence, it's trust. I think the bedrock of trust is transparency. That's why Perplexity pioneered showing you exactly which source the information is coming from and empowering users to apply their own judgment of whether that is a good source or not so good source.

6:07But we deploy many different algorithmic strategies. Oftentimes, if many publications are saying the same thing, that's a strong signal that they're onto something. And the outliers, you're kind of more sensitive to. But this isn't, you know, it's not a simple problem. And this is why we raise a lot of capital and hire the world's best technologists to build accurate AI. So I think anyone could sort of intuitively understand why publishers might be anxious about perplexity as being a destination. Evidently, it's not just news publishers. Literally, since we got on stage three minutes ago, news broke that Amazon demands perplexity to stop AI agent from making purchases.

6:55Literally, it just broke three minutes ago from Bloomberg. Good job, Bloomberg. It's not just news that's anxious about the idea of perplexity being the destination. Clearly, it's all kinds of businesses. So I think, and I haven't read the article yet, but I think I have an understanding of the issues. Ultimately, the issue with Amazon is tied to perplexity's web browser called Comet. And Comet is a web browser that has an AI assistant built into it. And what we think is important is that consumers and end users have access to powerful AI when they are accessing publications, accessing websites, accessing the internet.

7:41The first 30 years of the internet, we had lopsided AI where big tech, Google, Netflix, Facebook, they used AI to control what we see to get us to click on certain things and not click on other things. and what is changing now is perplexity is focusing on giving powerful ai to the end user and we think this is the right thing to do we think it's a principled viewpoint that when you're on amazon it's not amazon's business whether you're using ai to help you evaluate is this the best thing to buy you know can i find it cheaper somewhere else uh do i actually need to buy the other thing they're telling me to buy with it uh the world's wealthiest people they have personal shoppers that help them do this.

8:26And we're democratizing that sort of intelligence, that sort of assistant access to everyone. Just in terms of competition, is the argument basically that technically, you know, a Google or an Amazon could create similar products to what you guys are doing, but their own business model basically prohibits them from doing what you're doing? I should have you join our next investor pitch. It's exactly that. But there is a big opening for an independent, neutral AI player that is aligned with users. Google is still generating$100 billion in revenue per quarter, which is amazing. But a lot of that is coming from getting their customers' advertisers.

9:14Amazon, they're trying to get you to buy as many things as possible. Our success metric is the users, are they willing to pay for a perplexity subscription? And so we're purely aligned with our users. Speaking of competition, like what is the differentiator? Okay, maybe Amazon has some obvious angles and some of the others. OpenAI seems sort of independent in the same bucket. It's really huge. It's one of the biggest websites in the world. It doesn't strike me. Many of the things that they offer, Replicate, seem sort of similar to Perplexity. You must get this. I know you have private stock answer to this, but what is the differentiator between you and an open AI?

9:59So, you know, I'm fortunate to get to speak with a lot of curious people that have to answer a lot of hard questions every day. And they tell me they use Perplexity. And it comes back to we're focused on accuracy above all else. ChatGPT is an amazing product, but they built a product that is optimized for engagement. It's trying to be your cheerleader, your coach. It's trying to get you to keep going. And they've also built a product that is designed not to use the best LLM in service of your question, but it's designed to use their LLMs. And so part of being neutral, part of being independent, trustworthy, accurate is using the best possible technology to answer the question the best possible way.

10:49And so being an aggregator of all the best models, having our own independent search infrastructure that isn't the Bing search API, which is what ChatGPT uses, those are all the building blocks of a more useful, accurate AI. What's your actual revenue source at this point? Because I know you're big on subscriptions. You experimented with ads. I think you might have paused that at this point. But it does seem if you're trying to be different to Google, you probably don't want to be as ad driven as they are. Yeah. So we're seeing tremendous traction with both consumer subscriptions and then companies buying the enterprise version of Reflexity for their employees.

11:29ultimately it's in that enterprise context where having accurate useful knowledge is incredibly valuable and so you know we we've had you know been fortunate with a enterprise go-to-market team of just five people you know seeing that business you know more more than 8x this year uh seeing you know many multiples increase in our consumer subscriptions and we're excited about building products that are user aligned that also create marketing value for brands and advertisers. But this isn't going to be rebuilding AdWords and click-based systems. We think it's important to create real value so that when your personal AI agent powered by perplexity is evaluating a potential commercial opportunity, something you might buy, imagine alongside the answer, you got an offer for an exclusive discount.

12:24That would be something that your agent would say, hey, this is, even though someone's paying for this to show up here, this is actually a good deal. If it's just an ad that says, click me, click me, click me, we don't think that's going to be sustainable. And that's not the type of marketing products we're looking to build.

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14:47piecing through spreadsheets and running ad hoc queries just to figure out what to bill. With Metronome, you can roll out new pricing in minutes instead of months, whether it's usage-based, seat-based, or a hybrid model. Visit metronome.com to see how companies like OpenAI and Anthropic launch billing as fast as they launch products. That's metronome.com. Can we talk a little bit about the fundraising environment for AI? I mean, obviously we know how crazy, you know, intense things are. Are people throwing cash at you as you walk down the street? But also, it feels like every day. Like, it used to be when I paid attention to startups, it felt like there were discrete rounds.

15:23There was a C, then an A, and then a B, and then maybe a C, and then an IPO. When I read, it feels like every day there is just, are the rounds blending into each other so that it's just this sort of ongoing stream of, oh, here's a new raise, et cetera. Here, we got some new chips, and then we are giving them some equity, et cetera. Has the line between rounds, is it blurring? Yeah, so before perplexity, I mean, I spent most of my career at consumer internet companies, but I had a stint as a founder of a robotics startup. And AI is definitely a different fundraising environment than that was, which was very challenging.

15:59I think at its core, a lot of investors believe, and we agree with this belief, that what's happening with AI now is as profound as the original introduction of the internet. And so there are going to be a wave of new generational companies that are being built right now. And, you know, a lot of the value is actually, you know, compounding while these companies are privately held. And so that is, you know, there's a lot of conviction by private investors in that. And I think a second piece is that investors themselves are power users of products like Perplexity. They are people that have a lot of questions, do a lot of research.

16:44And so they have not just an abstract understanding of a balance sheet. They have their own intuition, which is very different than B2B SaaS, where it's like you have to go do 30 customer interviews. And you're kind of getting all the second order information. With perplexity, you use it yourself. You understand the value, the time that you just saved, the creative expansion you just had. And that gives investors conviction. And so that is fueling this environment. Is it at times too frothy? Sure. Are there going to be some investors that make the wrong bets? Absolutely. But the core human need of getting good answers to good questions, we think that is boundless.

17:34And so we're confident in the path ahead. Well, speaking of froth, is there anyone you turn away in terms of being an investor? Yeah. So there's this phenomenon that tends to happen in bubbly periods of multi-layered SPVs. So SPVs are special purpose vehicles. And so you basically have many layers of outsource fundraising where you have principal agent misalignment, where the fundraiser is not making money off the investment, they're just making money off the management fee. And so we often get approach from players in that space and whenever we can detect that's what it is, we avoid taking on funds like that because we want investors who are getting direct access to perplexity and who are in it for the long haul, who aren't just trying to make a quick buck on a management fee flip.

18:30I want to talk about this more. I'm really fascinated. We actually, we did an episode with Vlad Tenev, the Robinhood CEO, and he was talking about tokenization of private assets. And I guess this sort of actually relates to the question about discrete rounds. But does it feel like, you know, in theory, if some sort of slice of equity perplexing, maybe people sell forwards or these vehicles that are linked to it, does it feel like the line between what it even means to be a private and a public company is inevitably going to disappear, especially add in the fact that we seem to be on this road where public companies will not be expected or required to have to report information as timely as they used to.

19:10I think it's important when you're a privately held company to control the sale of your equity. And I think that the challenge, you know, why we haven't, you know, we've been approached by a lot of these tokenization schemes. and you know again if you have folks on your cap table that are not aligned for the long term yeah they may be looking for quick flips and then that creates a weird signal in the market and that may harm you know a primary raise right and so the the noise that comes with that liquid it's not like we're short on other you know investment you know avenues uh so it's just an unnecessary kind of noise risk.

19:52So speaking of throwing money around, the$35 billion bid for Chrome, what was that? Was that a troll? When we made that bid, the DOJ had still not decided whether Chrome would be divested from Google. The web browser, as evidenced by Amazon's behavior, is clearly incredibly valuable surface area. And that$35 billion was a starting bid. At this point, I can safely say I think Chrome is worth more than that. But what I can confidently say is we had more than$35 billion of investor interest in making that bid. So it was not a constraint on the funding side. Obviously, Google does not want to sell Chrome unless they will be forced to, and it doesn't look like the government will be forcing them.

20:49So you're serious about that one. It's not just a sort of antitrust flag-waving exercise. No, we had very large sovereign wealth funds that were kind of lined up and ready to go. Here's a great question from someone anonymous via the app. Can you talk about unit margins? You often hear this. It's like, oh, these AI companies, they're not even on a unit basis making money given the compute costs, et cetera. Can you talk about gross margins and right now whether a given query is profitable given the cost of delivering? So a paying pro subscriber to Perplexity is profitable for us. So the unit margins are strong.

21:35The free users right now, because we do not monetize them, we lose money on those. AI companies, I think something that is underappreciated, they generally actually, when they do the accounting of free users, they attribute that to research and development. Because you're still using those prompts to improve and train your system. We're training the model. So it does allow for your unit economics to potentially appear more pristine than they are. Are all pro users profitable? Well, because this also strikes me as something unique with AI, which is that, you know, and back when Twitter was in its infancy, power users were good.

22:16It feels like in the case with AI, sometimes you get these power users where you're losing money on them. Are all pro users profitable or do some use it so much that it's more than the subscription fee? I mean, I don't, it's not a material amount. And we've also introduced a max tier. So we have a$20 a month pro subscription. And for the folks that want the most expensive reasoning models and higher limits on them, there's a$200 a month product called Max. And that also gets you access to our email assistant. And so I think you'll, you know, and other companies have also introduced kind of higher tiers of subscription.

22:51So this is not a problem that's unique necessary to AI. And you kind of introduce tiers of service to support it at scale. What does your expenditure actually look like at this point? What are you spending the most money on? We read about these insane salaries for engineers going to Claude or OpenAI or whatever. Is it talent retention or is it compute power? Is it the content deals with media organizations? What are you spending on? The biggest expense is inference. It is the cost of compute when you're asking a question and running it through an LLM, that is a material expenditure. Perplexity doesn't do pre-training.

23:39So the sorts of AI PhDs that other companies are paying reported hundreds of millions of for, we're not in the market for that. We have incredible AI application engineers, and that's what we recruit for. Ultimately, engineers that are joining Perplexity are joining because they believe we're just getting started, right? And they're coming for an equity appreciation story that's already bearing fruit, but we're just at the beginning of that journey. Maybe this is sort of a way of restating Tracy's question, but it all feels like in any AI conversation, it's like, what is the bottleneck right now, right?

24:19Is it talent? Is it capital? Is it compute? Is it power? Et cetera. Like if you could have unlimited amounts of any one of those things, what would you want more of right now? So I think it's important to bifurcate. There's the companies that do the training of foundation models. And those are the ones that are really pushing for the massive infrastructure build outs. We're not constrained on compute for inference at the current usage levels. But as behavior shifts, I mean, by a show of hands in the room, how many people have stopped primarily using Google when they have an informational question?

25:01So about 80 % of the room raised their hands. And we see the early adopter behavior in audiences like this, folks that work in financial services, people that, again, for whom quickly getting high quality information matters. As this behavior becomes more mainstream, we obviously will need more compute for inference. But the folks that are kind of talking about trillions of dollars in investment, it's really a different universe than ours. It's unclear to me why some of those investments are needed. Sometimes it feels like a strategy of what the US was trying to do with the Soviet Union, of just getting your competitors to go broke by being able to raise the most capital.

25:52And we'll see how that plays out. Since you mentioned financial services, we have a good question from the audience. We've done some media navel gazing. I'm sure we're going to do some more. But for now, financial services, navel gazing, what do you think the impact of AI will be on places like Lazard and other Wall Street firms? I just think this is going to be an incredible flowering of creativity and productivity lift. I think of using a product like Perplexity and other AI tools in the day-to-day of somebody that works in an investment bank is really twofold. The first is saving you 80 % of the time to get to the 80 % first draft of a work product, right?

26:36And investment banks, that's kind of putting together pitch decks, doing modeling, just gaining tremendous efficiency. And it's important to distinguish. It's not about making that workflow autonomous. You still absolutely need human judgment on what the end output should be, how to approach it. This is not about replacing investment bankers. It's about giving them tremendous leverage. I think the more disruptive impact is now that it got a lot easier to begin a new initiative, to begin a new prospect, how many more new engagements are you going to be able to spin up? Because the biggest constraint on new business is an employee feeling they have the bandwidth to take it on.

27:21And, you know, experienced leaders now have much more leverage. And I think that's going to play a profound role at Lazard and, you know, part of why I'm excited to be part of the organization.

27:51You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic option plays on the side. The point is you're engaged with your investments and public gets that. That's why they built an investing platform for those who take it seriously. On public, you can put together a multi-asset portfolio for the long haul. Stocks, bonds, options, crypto, it's all there. Plus an industry leading 3.6 % APY, high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio.