Koah Raises $5M to Embed Advertising in AI Applications

How can startups and developers successfully monetize their AI offerings? A startup called Koah, which recently raised $5 million in seed funding, believes that advertising will play a crucial role in this endeavor.

If you’ve spent any time on the internet, you’ve likely seen countless unappealing AI-generated advertisements — yet notably fewer while interacting directly with AI chatbots. Koah’s co-founder and CEO Nic Baird asserts that this will soon change.

“Once these technologies expand beyond San Francisco, there’s genuinely only one way to make [them profitable] on a global scale,” Baird explained during a Zoom call with TechCrunch. “This pattern has frequently repeated itself.”

To clarify, Koah is not looking to embed ads into ChatGPT. (That’s probably a task OpenAI will tackle itself eventually.) Instead, it’s focusing on the “long tail” of applications built upon major models, especially those reaching user bases outside of the United States.

Baird pointed out that in the early stages of consumer AI, targeting “wealthier, prosumer” users made sense, monetizing them through subscription models.

However, it’s now possible for developers to create AI applications that engage millions of users in Latin America, who are “not willing to pay 20 dollars a month,” noted Baird. As a result, developers might struggle to earn subscription revenue while maintaining similar inference costs.

Baird suggested that if Koah can effectively integrate advertising into AI interactions, it could unleash significant potential for “vibe coded” applications that might otherwise be “too expensive to scale” without venture capital backing.

In fact, Koah is already launching ads in various applications like the AI assistant Luzia, the parenting tool Heal, the student research platform Liner, and the creative site DeepAI. Advertisers include UpWork, General Medicine, and Skillshare.

These ads are marked as sponsored content and are designed to display at relevant moments during chats. For example, if a user is looking for startup business advice, the application might showcase an ad from UpWork to connect them with helpful freelancers.

In discussions with publishers, Baird acknowledged that many believe ads underperform within AI chats, while others have encountered limited success with traditional adtech solutions from firms like Admob and AppLovin.

However, Baird claims that Koah’s efficacy is 4 to 5 times greater, achieving clickthrough rates of 7.5%, with initial partners earning $10,000 within their first month on the platform. He emphasized that Koah accomplishes this without significantly harming user engagement — though his ultimate goal is for Koah ads to be so relevant that they actually enhance engagement.

Koah’s seed funding round, led by Forerunner, also involved participation from South Park Commons and AppLovin co-founder Andrew Karam.

Forerunner partner Nicole Johnson echoed many of Baird’s points in an email regarding the investment. She stated that monetization is “the elephant in the room among builders and investors” in the AI industry. While subscription models have been the primary method for monetizing consumer AI services, an exclusive focus on this approach can “quickly lead to fatigue and churn.”

“Diverse revenue models for Consumer AI are unavoidable, and if historical internet service trends are any indication, ads will play a vital role,” Johnson asserted. She believes Koah is “establishing the fundamental monetization layer for consumer AI services.”

When positioning AI chats in the larger advertising landscape, Baird and his team recognize they are situated in the middle of the purchasing funnel — between brand awareness generated by an Instagram ad and the actual purchase driven by a Google search ad.

“Users are not making transactions through AI — they simply aren’t,” Baird cautioned. While they may ask for recommendations or details from a chatbot, “they’re going to Google to finalize the purchase.” Therefore, a significant challenge for Koah is figuring out the best ways to capture a user’s “commercial intent.”

“I’m not particularly focused on how to display an ad in AI,” Baird mentioned. Rather, his goal is to understand “What is the user searching for, and how can we deliver that to them?”