Facebook's meteoric rise two decades ago offers OpenAI a rich but potentially treacherous playbook for the ChatGPT maker to defend and expand its lead in the consumer AI market.

Why it matters: Facebook, now Meta, turned its billions of users' personal data into an advertising goldmine — and that road looks like OpenAI's most likely path as it seeks to fund its fabulously expensive operations.

Driving the news: OpenAI will begin testing ads on ChatGPT this month, the company recently announced.

• The initial wave of advertising clients will be charged premium rates, per The Information.
• The ad push means "more people can benefit from our tools with fewer usage limits or without having to pay," OpenAI said in a blog post. It promised to keep ChatGPT's responses "driven by what's objectively useful, never by advertising."

Between the lines: OpenAI's origins as a nonprofit research lab shaped a culture that long viewed ad-based revenue models with suspicion.

• As recently as October 2024, CEO Sam Altman said he found advertising in AI chatbots "uniquely unsettling" and described it as "a last resort for us as a business model."

Yes, but: More recently the company has filled out its ranks with Facebook/Meta veterans steeped in that company's ad-driven, engagement-at-all-costs mindset.

• A study of LinkedIn postings by The Information found that roughly 20% of OpenAI's workforce list Facebook/Meta gigs on their resumes.

The central figure is Fidji Simo, who was a key architect of Facebook advertising in the 2010s and was named OpenAI's CEO of applications last May.

• Simo "reassured" OpenAI employees on her arrival there that she did not want to replay her Meta career and would "do things differently," per an Information report.
• But you don't hire the executive famous for building Facebook's mobile-advertising juggernaut — and then masterminding its "pivot to video" — without some thought of putting that expertise to work.
• As a former public-company CEO (of Instacart), Simo would also be a logical choice to take the helm at OpenAI if it chooses the IPO route. Altman has often expressed a reluctance to remain CEO in such a scenario.

Keep reading below.

OpenAI is under intense pressure to boost revenue as it seeks hundreds of billions of dollars to build AI infrastructure and cover operating losses.

• Most current OpenAI revenue comes from individual ChatGPT customers' subscription fees.
• Markets have been spooked by reports that ChatGPT user growth has slowed, and analysts are debating whether OpenAI is a sure bet or a money sink.
• A big new ad revenue stream would go a long way toward allaying those fears.

The other side: Even in ChatGPT's ad-free youth, critics have decried the chatbot's tendency to tell users what they want to hear, to make up answers and to inspire psychosis-inducing rabbit-hole dives.

• The introduction of ads will give OpenAI that much stronger an incentive to keep users chatting longer.
• Early enthusiasm for OpenAI's Sora video-making app led some OpenAI employees to publicly question the company's push into social media.
• Users who confide in an AI chatbot expect it to be working on their behalf, not for some paying third party.
• As Altman himself put it in that October 2024 interview: "When I think of GPT writing me a response, if I had to go figure out, you know, exactly how much was who paying here to influence what I'm being shown, I don't think I would like that."

Our thought bubble: Expect OpenAI's early ad forays to be low-key, as the firm seeks to preserve users' trust.

• For instance, one mockup for the first ChatGPT ad pilots reportedly places sponsored material in a sidebar that only appears once a conversation has turned toward discussing purchases.
• Over time, as users grow accustomed to the ads and OpenAI needs to goose growth, the ad placements and engagement farming are likely to become more aggressive.

That would be a page from Google's playbook rather than Facebook's.

• The search giant transformed itself very slowly, over two decades, from a research-driven startup that distrusted the ad model into the world's largest advertising company.
• There wasn't any single moment when most users would say, "Now they've gone too far." There was just a time when users collectively realized they were in a vastly different place.

Software stocks are getting dumped as investors price in a world where AI could replace software services.

Why it matters: The software selloff dragged down the entire market yesterday — it's the first example of how the market will respond when presented with evidence that AI could disrupt or even replace an entire industry.

Driving the news: Software stocks slid after Anthropic rolled out new AI automation capabilities for several different sectors of enterprises.

Keep reading.

• French prosecutors raided X's Paris offices yesterday and summoned Elon Musk and former CEO Linda Yaccarino for voluntary questioning in a criminal probe tied to Grok's Holocaust denial and explicit deepfakes. (Axios)
• Seven takeaways from the latest International AI Safety report. (The Guardian)
• Pennsylvania Gov. Josh Shapiro laid out his $53.2 billion budget blueprint yesterday, along with a wish list of new rules for data centers and chatbots. (Axios Philadelphia)

U.S. speed skater Casey Dawson told me he is glad to be able to have a more social experience than was possible in the locked-down bubble of the COVID-era Winter Games in Beijing.

• As for that giant foot phone case he has to lug around, he tells me it's the cost of losing his fantasy football league this year.
• Read more on my experiences from the Village here.