🤖📚 Issue #123: How Much Is Your Content Now Worth To Generative Search Engines?
Claremont grad Kunal Menda shares a framework for valuing content libraries for use in generative search engines and how it could shape lucrative licenses deals between AI companies and publishers.
Good morning & happy Thursday. GenAI continues to make waves, changing how we search for, use, and consume data. And as with any new technology, it brings both remarkable opportunities and significant challenges, especially for the content and publishing industry.
This week, Claremont graduate and entrepreneur Kunal Menda shares an insightful framework for valuing content in the age of generative search, highlighting how AI companies can assess the worth of content libraries and navigate new licensing agreements. It’s a Claremont world out there. 👇
~ Josh, Miles, Matthew, Pat
📣 Claremont Announcements: A Claremont Founder & Funder Happy Hour in San Diego
Claremont alum Kunal Menda (CMC & HMC ‘16)is the co-founder of AltLab – an AI startup that builds analytics and automation for the alternative investing ecosystem. Kunal holds degrees in Economics and Engineering from Claremont McKenna and Harvey Mudd. Before AltLab, Kunal completed his PhD in Aeronautics & Astronautics at Stanford University, focused on model-based reinforcement learning and artificial intelligence. After his PhD, he spent three years as a research scientist and vice president at the BlackRock AI Labs. There, Kunal led a research team with his co-founder Ralph Benarrosh that used optimization and machine learning techniques to build frameworks for alternative asset underwriting and portfolio construction.
AltLab’s primary focus has been on underwriting media content libraries for generative AI use cases. Kunal is looking to connect with publishers, folks at sell-side advisory firms advising on media transactions, and people on the buy side who may look to buy interests in content libraries in the future. If this sounds interesting, message AltLab directly. 👇
Since the launch of ChatGPT in 2022, there has been much debate about the value of the underlying content to generative AI, as well as how those who produce it should be compensated. In this blog post, we present a framework for valuing content libraries (e.g., the set of articles on a website) for use in generative AI applications. We propose that content's value in this context is attributable to two main value drivers:
Its relevance; i.e., how much demand there is from the AI’s user base for the information in the content library.
Its uniqueness; i.e., how many other content providers have the same information available.
We integrate these insights into an underwriting framework and use it to analyze the contributions of various content libraries to the responses generated by Perplexity AI for a set of sample queries. Using various deal term assumptions, we then convert these attribution percentages into dollar amounts that would be paid to the publishers under the terms of a hypothetical revenue-sharing agreement between the AI company and the publisher.
While our framework uses historical data to analyze the AI's behavior, we provide the ability to add forward-looking assumptions around the relevance of different topics over time. These assumptions will be reflected in the results of the underwriting. For example, while US domestic politics may be very relevant within the period covered by our sample data set, it may become less relevant after the November elections. Our framework allows for such a view to be expressed and reflected in the forward-looking valuation.
Ever since ChatGPT took the world by storm in late 2022, there has been enormous hype around the potential for generative AI to transform the way people search for and consume information on the internet. However, these new technological trends are not without the potential for collateral damage. The publishing industry in particular is facing a significant threat on several fronts because of generative AI. First, early generative AI models were trained on content that was not explicitly licensed from their original owners. Second, there is a widespread assumption that generative search experiences (GSEs) such as SearchGPT, Google’s AI Overviews, and Perplexity AI, will dramatically reduce the number of visitors to third-party websites, taking advertising revenue along with it. The reasoning goes that because GSEs produce fully formed responses to queries, there will be less of a need for users to click through to the source material, even if it is cited in the response.
In response to these developments, publishers have begun licensing their content to AI companies. This begs the question: how does one value a content library (i.e., the set of articles they've published) in the context of these licensing deals? There is a lot of money riding on this question, with recent transactions having been in the tens or even hundreds of millions of dollars. However, this is not an easy question to answer for several reasons. First, generative AI is a nascent technology and we have observed very few transactions of this kind in the market. The transactions we have observed are large and idiosyncratic. Second, content libraries cannot be valued in isolation because differentiated content is more valuable than commoditized content. Third, analyzing the behavior of generative search engines is challenging without the use of large-scale automation and analytics. Developing these capabilities in-house is challenging for the traditional analysts who would normally create such underwriting frameworks….
In the preceding example, Reuters' revenue share from Perplexity over the next two years is estimated to be worth $9.2M USD. While there is little publicly available information about the recent deals that have taken place, one data point is the recent deal between News Corp and OpenAI that is reportedly worth $250M USD over 5 years. OpenAI's annual revenue is reportedly around $3.4 billion USD and has approximately doubled in the last twelve months. If we were to assume the same revenue and growth rate for Perplexity AI, scale the deal's time horizon to five years, and assume that Perplexity shares 65% of their revenue with publishers, then the most valuable content library (Reuters) would be worth $775M USD to Perplexity. OpenAI is not just a generative search engine, though, so assuming a 65% revenue share with publishers is likely too high. In our framework, the $250M USD deal value would imply a 21% revenue share with publishers with the aforementioned assumptions….
Check out AltLab’s full article and framework below. 👇
Ina completed her Economics degree from Scripps in 2014. After graduation, she attended Tradecraft and soon landed a job as a Growth Analyst at Zumper. She then joined Walmart’s product team, where she was a Product Manager for almost five years. Now, Ina is the founder and CEO of AddGlow – a SaaS software that helps brands build community on their website (think Reddit for brands) to increase revenue, loyalty, organic traffic, and word of mouth. AddGlow announced their $1.7M pre-seed round earlier this year, led by Stellation Capital, Precursor Ventures, and StoryHouse.
AddGlow recently signed an annual contract with Carewell, the #1 specialty e-commerce retailer focused on home healthcare supplies, and was also featured on the Times Square billboard.
💼 Who’s Hiring?: Terra AI & Speakeasy
StoryHouse portfolio company Terra AI is on a mission to provide the premier AI platform for the development of critical natural resources. They're leveraging AI modeling, reasoning, and optimization to enhance the performance, predictability, and safety of reservoir, wind, and mineral development projects. Claremont gradAnthony Corso (HMC '14) andJohn Mern(who previously worked for KoBold Metals, founded by CMC grad Kurt House)are the co-founders of Terra, and they are looking for a talented Senior AI/ML Engineer to lead the development of key deployment infrastructure. If you're interested in learning more, shoot us a message.
Sagar Batchu (HMC ‘15) is the CEO and co-founder of Speakeasy – an API DevEx platform that instantly creates SDKs that make API integration easy for your users. Their platform takes the heavy lifting out of providing a great API experience by integrating directly into your GitOps and propagating changes. Speakeasy is leveraging platform engineering, code gen, and LLMs to provide a platform that unburdens teams who are creating, maintaining, and constantly evolving their APIs. They’re also backed by Google Ventures, Quiet Capital, and StoryHouse Ventures, and they’re hiring for several open roles on their team:
Check out the other ~5,000 open jobs at 400+ Claremont-affiliated companies here on our Storyboard. Plus, create a profile and enter your preferences to get alerted to new job postings relevant to you, be they the 1,000+ remote jobs, 100+ internships, or 40+ part-time positions available. We’ve published research that shows that Claremont-founded companies that disproportionately hire Claremont talent outperform — so pay attention, Claremonsters!
If any of these roles catch your eye 👀 , apply and mention StoryHouse Review. Or, if you are an employer looking to hire tip-top Claremont talent, fill out this form to have your jobs featured.
🗣️ Conversations on the Interwebz:
This week’s top read 🔥
Serial Claremont entrepreneur Xiaoyin Qu (PO) is the founder and CEO of Heeyo, an AI playmate that helps kids interact and play creatively. Previously, she founded and led Run The World, an online event platform successfully acquired by EventMobi. Her new AI startup, Heeyo, made headlines last month with the announcement of their $3.5M seed round, backed by StoryHouse Ventures, OpenAI, Amazon Alexa Fund, Pear VC, and Charge Ventures. In a recent interview with AIM, Xiaoyin shared her inspiring founder journey, including her bold decision to leave Stanford to pursue her passion for transforming education with AI.
This week’s must-watch 📺
Claremont alumnus Louis-Victor (or “LV”) Jadavji (CMC) recently sat down with AAAI Talks to share the story of Taloflow's development, tracing its roots from Weave Wearables to its current focus on AI-powered vendor selection. LV is the CEO and co-founder of Taloflow, a buying insights platform for the tech stack. Last June, they were featured on TechCrunch for their $1.3M raise and the launch of their research AI for enterprise tech evaluations. Check out LV’s full interview on AllAboutAI.
This week’s top listen 🎧
Claremont entrepreneur and CEO Ian Manners (PO ‘06) joined Greg Head on the Practical Founders podcast to share the founding story of his company, Vivor – a financial assistance SaaS platform for healthcare providers and pharmacies acquired by TailorMed in 2021. Before founding Vivor, Ian was a successful consultant for pharmaceutical companies in the US. In this episode, Ian talked about how his bootstrapped software startup grew slowly and eventually helped over 100,000 patients receive over $2 billion in financial assistance to offset the high costs of prescriptions.
Claremont alum Alex Ruiz (PO) was on the CryRoom podcast to discuss the art of strategic thinking. He highlighted the common pitfalls to avoid and shared valuable tips on crafting effective career and personal growth strategies. Alex is the former COO of cybersecurity company 3GO and is currently the Fractional COO of La Familia Foundation. With his extensive experience as a technology executive and entrepreneur, Alex has guided numerous businesses in securing pilot projects representing millions in annual recurring revenue and landing key Fortune 500 clients.
Can’t get enough of StoryHouse Review? Follow and connect with us on Twitter!
🤖 What We Need To Know About AI Agents…..In his latest Forbes article, Claremont grad Skip Sanzeri (CMC ‘83) discussed the growing security risks of AI agents, which are becoming central to our daily lives. He highlighted potential dangers like data breaches and identity theft, stressing the need for strong encryption and regular security checks. As AI agents become integral to our lives, he stresses the urgency of addressing these security challenges to safeguard our digital future. Skip is the founder, COO, and board chair of QuSecure, a global leader in post-quantum cybersecurity.
